BATTLE CREEK, Mich., Oct. 29, 2009 (GLOBE NEWSWIRE) -- Kellogg Company (NYSE:K) today reported third quarter 2009 financial results that included strong internal net sales and internal operating profit growth. Third quarter net earnings were $361 million, a 6% increase from last year's third quarter net earnings of $342 million. Earnings per diluted share were $0.94 for the quarter, a year-over-year increase of 6% on a reported basis and 12% higher on a currency-neutral basis despite higher up-front costs.
"The current economic environment has placed significant pressure on our consumers," said David Mackay, Kellogg Company chief executive officer. "However, the environment also provided us with both the incentive and the opportunity to build an even stronger company for the future. We are aggressively pursuing productivity initiatives, as well as taking advantage of media deflation and efficiency programs to invest even more back into advertising to further drive the long-term health of our brands."
Third quarter reported net sales were $3.3 billion, representing a 0.3% decrease versus the third quarter of 2008. However, internal net sales growth, which excludes the effects of foreign currency translation and acquisitions, rose 3%, in line with the Company's long-term annual growth targets. Kellogg North America posted net sales growth of 1% on a reported basis, and 2% on an internal basis, building on strong year-ago internal net sales growth of 9%. Internal net sales growth for Kellogg North America consisted of 2% internal net sales growth delivery from North America Retail Cereal, 3% growth from North America Snacks, and a decline of 3% from North America Frozen and Specialty Channels.
Kellogg International posted a third quarter net sales decline of 4% on a reported basis; however, net sales grew 6% on an internal basis, which excludes the effects of currency translation and acquisitions. Internal net sales for Kellogg International consisted of Latin America's internal net sales growth of 9%, Asia Pacific's growth of 4%, and Europe's growth of 5% versus the third quarter of last year. Of particular note is Europe's strong return to internal net sales growth in the back half of the year, in line with guidance from the Company's second quarter conference call.
Operating profit for the third quarter of $567 million was a solid 6% increase on a reported basis, and a strong 11% increase on an internal basis. Total up-front costs for cost-reduction initiatives totaled approximately $0.06 per share, out-pacing 2008's third quarter up-front costs of $0.01 per share. Gross margin for third quarter 2009 of 43.9% represents a 120 basis point increase over last year's third quarter on a reported basis.
The benefit to third quarter earnings per share from favorability below the operating profit line in items such as interest expense and a lower effective tax rate was more than offset by unfavorability in other income and expense.
Kellogg Company continued to deliver strong cash flow, generating $978 million year-to-date, including an unfavorable impact from foreign exchange. The Company's year-to-date cash flow, defined as cash from operating activities less capital expenditures, surpassed the $893 million of cash flow generated during the comparable period in 2008. For the full-year 2009, Kellogg raised guidance for cash flow, as defined, to approximately $1.2 billion. "Manage for Cash continues to be a key operating principle for Kellogg. Having re-doubled our efforts in this difficult environment, we will deliver a record cash flow performance in 2009 despite the adverse impact of foreign exchange," said Mackay.
Kellogg Raises Full-Year 2009 Guidance and Provides Guidance for 2010
Kellogg re-affirmed its internal sales growth guidance of 3 - 4% for full-year 2009, which is above the Company's long-term targets. The Company now anticipates increased gross margin expansion for full-year 2009 of approximately 100 basis points, reflecting strong productivity gains and slightly lower than expected inflation. Kellogg also raised guidance for 2009 internal operating profit growth to a range of 8 - 10%, above the Company's long-term targets and despite significant re-investment in advertising and up-front costs. In addition, the Company raised its currency-neutral earnings per share guidance for 2009 from a range of 8 - 10% to a range of 10 - 12%, reflecting strong profit growth slightly offset by higher interest expense.
Supported by the strong performance in 2009, continuing momentum and significant re-investment, the Company is well-positioned to deliver another year of strong growth in 2010. For 2010, Kellogg anticipates internal net sales growth of 2 - 3%, in line with the Company's long-term targets and reflecting less pricing year-on-year. Up-front costs for full-year 2010 will decrease from 2009's 26 cents per share to a range of 14 - 16 cents per share and this decrease will positively impact operating profit and net earnings. Accordingly, the Company anticipates internal operating profit growth in the high single-digit range, above its long-term annual targets. Reflecting this higher level of anticipated profit growth for 2010, the Company further guided to a range of 10 - 12% earnings per share growth on a currency-neutral basis, anticipating a second consecutive year of growth above its long-term annual targets.
CEO Mackay concluded, "Although most aspects of our guidance for both 2009 and 2010 are above our long-term targets, we are pragmatic about the challenging environment we face. Hence, we are focused on continued reinvestment into our brands, as well as optimizing our business model and global organization -- while achieving cost savings and future visibility. We therefore remain confident in our ability to continue delivering sustainable, dependable performance in the future."
Conference Call / Webcast
Kellogg will host a conference call to discuss these results on October 29, 2009 at 9:30 am Eastern Daylight 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 (U.S.) or 201-604-5146 (International). Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is also available at http://investor.kelloggs.com.
About Kellogg Company
With 2008 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(R), Keebler(R), Pop-Tarts(R), Eggo(R), Cheez-It(R), Nutri-Grain(R), Rice Krispies(R), BearNaked(R), Morningstar Farms(R), Famous Amos(R), Special K(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.
The Kellogg Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3194
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; 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; 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.
Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME (millions, except per share data) ===================================================================== Year-to-date Quarter ended period ended Oct. 3, Sept. 27, Oct. 3, Sept. 27, (Results are unaudited) 2009 2008 2009 2008 --------------------------------------------------------------------- Net sales $3,277 $3,288 $9,675 $9,889 Cost of goods sold 1,837 1,885 5,529 5,678 Selling, general and administrative expense 873 870 2,497 2,603 --------------------------------------------------------------------- Operating profit 567 533 1,649 1,608 Interest expense 65 71 199 230 Other income (expense), net (10) 12 (1) (7) --------------------------------------------------------------------- Income before income taxes 492 474 1,449 1,371 Income taxes 132 133 416 403 Earnings (loss) from joint ventures -- -- (1) -- --------------------------------------------------------------------- Net income 360 341 $1,032 $ 968 --------------------------------------------------------------------- Net income (loss) attributable to noncontrolling interests (a) (1) (1) (4) (1) --------------------------------------------------------------------- Net income attributable to Kellogg Company (a) $ 361 $ 342 $1,036 $ 969 --------------------------------------------------------------------- Per share amounts: Basic $ .94 $ .90 $ 2.71 $ 2.54 Diluted $ .94 $ .89 $ 2.70 $ 2.51 Dividends per share $.3750 $.3400 $1.0550 $.9600 --------------------------------------------------------------------- Average shares outstanding: Basic 382 380 382 382 --------------------------------------------------------------------- Diluted 384 384 383 385 --------------------------------------------------------------------- Actual shares outstanding at period end 379 381 ===================================================================== ===================================================================== (a) Accounting guidance for "Noncontrolling interests in Consolidated Financial Statements" requires retrospective presentation of amounts related to partially-owned subsidiaries. Kellogg Company and Subsidiaries SELECTED OPERATING SEGMENT DATA ===================================================================== Year-to-date Quarter ended period ended (millions) Oct. 3, Sept. 27, Oct. 3, Sept. 27, (Results are unaudited) 2009 2008 2009 2008 --------------------------------------------------------------------- Net sales North America $2,187 $2,156 $6,574 $6,431 Europe 631 666 1,805 2,089 Latin America 262 277 750 813 Asia Pacific (a) 197 189 546 556 --------------------------------------------------------------------- Consolidated $3,277 $3,288 $9,675 $9,889 --------------------------------------------------------------------- Segment operating profit North America $ 415 $ 380 $1,244 $1,163 Europe 105 113 304 347 Latin America 51 61 157 166 Asia Pacific (a) 28 26 74 79 Corporate (32) (47) (130) (147) --------------------------------------------------------------------- Consolidated $ 567 $ 533 $1,649 $1,608 --------------------------------------------------------------------- ===================================================================== (a) Includes Australia, Asia and South Africa. Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (millions) ===================================================================== Year-to-date period ended October 3, September 27, (unaudited) 2009 2008 --------------------------------------------------------------------- Operating activities Net income $1,032 $ 968 Adjustments to reconcile net income to operating cash flows: Depreciation and amortization 282 274 Deferred income taxes (9) (12) Other (18) 123 Postretirement benefit plan contributions (93) (60) Changes in operating assets and liabilities 36 (105) --------------------------------------------------------------------- Net cash provided by operating activities 1,230 1,188 --------------------------------------------------------------------- Investing activities Additions to properties (252) (295) Acquisitions of businesses, net of cash acquired -- (212) Property disposals 1 11 --------------------------------------------------------------------- Net cash used in investing activities (251) (496) --------------------------------------------------------------------- Financing activities Net issuances (reductions) of notes payable (915) 48 Issuances of long-term debt 745 756 Reductions of long-term debt -- (466) Issuances of common stock 34 155 Common stock repurchases (187) (650) Cash dividends (403) (365) Other 2 14 --------------------------------------------------------------------- Net cash used in financing activities (724) (508) --------------------------------------------------------------------- Effect of exchange rate changes on cash 17 (24) --------------------------------------------------------------------- Increase in cash and cash equivalents 272 160 Cash and cash equivalents at beginning of period 255 524 --------------------------------------------------------------------- Cash and cash equivalents at end of period $ 527 $ 684 ===================================================================== ===================================================================== Supplemental Financial Data: Cash Flow (operating cash flow less property additions) (a) $ 978 $ 893 ===================================================================== (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) ===================================================================== October 3, January 3, 2009 2009 (unaudited) * --------------------------------------------------------------------- Current assets Cash and cash equivalents $ 527 $ 255 Accounts receivable, net 1,254 1,100 Inventories: Raw materials and supplies 232 203 Finished goods and materials in process 631 694 Deferred income taxes 128 112 Other prepaid assets 126 157 --------------------------------------------------------------------- Total current assets 2,898 2,521 Property, net of accumulated depreciation of $4,498 and $4,171 3,000 2,933 Goodwill 3,643 3,637 Other intangibles, net of accumulated amortization of $43 and $42 1,460 1,461 Pension 172 96 Other assets 347 298 --------------------------------------------------------------------- Total assets $11,520 $10,946 ===================================================================== Current liabilities Current maturities of long-term debt $1 $1 Notes payable 475 1,387 Accounts payable 1,082 1,135 Accrued advertising and promotion 479 357 Accrued income taxes 21 51 Accrued salaries and wages 289 280 Other current liabilities 386 341 --------------------------------------------------------------------- Total current liabilities 2,733 3,552 Long-term debt 4,823 4,068 Deferred income taxes 338 300 Pension liability 603 631 Other liabilities 993 940 Commitments and contingencies Equity Common stock, $.25 par value 105 105 Capital in excess of par value 454 438 Retained earnings 5,461 4,836 Treasury stock, at cost (1,927) (1,790) Accumulated other comprehensive income (loss) (2,066) (2,141) --------------------------------------------------------------------- Total Kellogg Company equity 2,027 1,448 Noncontrolling interests (a) 3 7 --------------------------------------------------------------------- Total equity 2,030 1,455 --------------------------------------------------------------------- Total liabilities and equity $11,520 $10,946 ===================================================================== * Condensed from audited financial statements. (a) Accounting guidance for "Noncontrolling interests in Consolidated Financial Statements" requires retrospective presentation of amounts related to partially-owned subsidiaries. Kellogg Company and Subsidiaries Analysis of net sales and operating profit performance Third quarter of 2009 versus 2008 ===================================================================== North Latin Asia Consoli- (dollars in America Europe America Pacific Corporate dated millions) (a) --------------------------------------------------------------------- 2009 net sales $ 2,187 $ 631 $ 262 $ 197 $ -- $ 3,277 --------------------------------------------------------------------- 2008 net sales $ 2,156 $ 666 $ 277 $ 189 $ -- $ 3,288 --------------------------------------------------------------------- % change - 2009 vs. 2008: Volume (tonnage)(b) -.8% 4.2% 6.4% -1.5% -- .7% Pricing/mix 2.5% .5% 2.9% 5.5% -- 2.4% --------------------------------------------------------------------- Subtotal - internal business 1.7% 4.7% 9.3% 4.0% -- 3.1% Acquisitions (c) .1% -- -- 1.8% -- .1% Foreign currency impact -.3% -10.0% -14.7% -1.6% -- -3.5% --------------------------------------------------------------------- Total change 1.5% -5.3% -5.4% 4.2% -- -.3% ===================================================================== ===================================================================== North Latin Asia Consoli- (dollars in America Europe America Pacific Corporate dated millions) (a) --------------------------------------------------------------------- 2009 operating profit $ 415 $ 105 $ 51 $ 28 $ (32) $ 567 --------------------------------------------------------------------- 2008 operating profit $ 380 $ 113 $ 61 $ 26 $ (47) $ 533 --------------------------------------------------------------------- % change - 2009 vs. 2008: Internal business 9.5% 7.0% -3.3% 8.6% 34.4% 11.3% Acquisitions (c) -- -- -- -3.5% -- -.1% Foreign currency impact -.3% -14.5% -13.9% -.1% -- -4.9% --------------------------------------------------------------------- Total change 9.2% -7.5% -17.2% 5.0% 34.4% 6.3% ===================================================================== (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. (c) Impact of results for the quarterly period ended October 3, 2009 from the acquisitions of Specialty Cereal and certain assets and liabilities of IndyBake. Kellogg Company and Subsidiaries Analysis of net sales and operating profit performance Year-to-date 2009 versus 2008 ===================================================================== North Latin Asia Consoli- (dollars in America Europe America Pacific Corporate dated millions) (a) --------------------------------------------------------------------- 2009 net sales $6,574 $1,805 $ 750 $ 546 $ -- $ 9,675 ===================================================================== 2008 net sales $6,431 $2,089 $ 813 $ 556 $ -- $ 9,889 ===================================================================== % change - 2009 vs. 2008: Volume (tonnage)(b) -.8% -1.9% 3.4% 2.0% -- -.5% Pricing/mix 3.8% 3.3% 5.2% 3.8% -- 3.8% --------------------------------------------------------------------- Subtotal - internal business 3.0% 1.4% 8.6% 5.8% -- 3.3% Acquisitions (c) .1% .4% -- 4.8% -- .4% Foreign currency impact -.9% -15.4% -16.3% -12.4% -- -5.9% --------------------------------------------------------------------- Total change 2.2% -13.6% -7.7% -1.8% -- -2.2% ===================================================================== ===================================================================== North Latin Asia Consoli- (dollars in America Europe America Pacific Corporate dated millions) (a) --------------------------------------------------------------------- 2009 operating profit $ 1,244 $ 304 $ 157 $ 74 $ (130) $ 1,649 ===================================================================== 2008 operating profit $ 1,163 $ 347 $ 166 $ 79 $ (147) $ 1,608 ===================================================================== % change - 2009 vs. 2008: Internal business 8.2% 6.4% 10.7% 19.1% 12.1% 10.4% Acquisitions (c) -- -- -- -9.8% -- -.5% Foreign currency impact -1.2% -18.9% -16.5% -16.0% -- -7.4% --------------------------------------------------------------------- Total change 7.0% -12.5% -5.8% -6.7% 12.1% 2.5% ===================================================================== (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. (c) Impact of results for the year-to-date period ended October 3, 2009 from the acquisitions of United Bakers, Navigable Foods, Specialty Cereal and certain assets and liabilities of IndyBake. Kellogg Company and Subsidiaries Up-Front Costs* $ millions Quarter ended Year-to-date period October 3, 2009 ended October 3, 2009 ------------------------- ------------------------ Selling, Selling, general general and and Cost of adminis- Cost of adminis- goods trative goods trative sold expense Total sold expense Total --------------------------------------------------------------------- 2009 North America $ 12 $ 1 $ 13 $ 46 $ 12 $ 58 Europe 8 5 13 18 5 23 Latin America 6 -- 6 8 -- 8 Asia Pacific 2 -- 2 3 -- 3 Corporate -- -- -- -- -- -- ---------------------------------------------------- Total $ 28 $ 6 $ 34 $ 75 $ 17 $ 92 --------------------------------------------------------------------- Quarter ended Year-to-date period September 27, 2008 ended September 27, 2008 ------------------------- ------------------------ Selling, Selling, general general and and Cost of adminis- Cost of adminis- goods trative goods trative sold expense Total sold expense Total --------------------------------------------------------------------- 2008 North America $ -- $ -- $ -- $ -- $ 2 $ 2 Europe 5 -- 5 18 -- 18 Latin America -- -- -- 11 -- 11 Asia Pacific -- -- -- -- -- -- Corporate -- -- -- -- 17 17 --------------------------------------------------- Total $ 5 $ -- $ 5 $ 29 $ 19 $ 48 --------------------------------------------------------------------- --------------------------------------------------------------------- 2009 Variance - better(worse) than 2008 North America $ (12) $ (1) $ (13) $ (46) $ (10) $(56) Europe (3) (5) (8) -- (5) (5) Latin America (6) -- (6) 3 -- 3 Asia Pacific (2) -- (2) (3) -- (3) Corporate -- -- -- -- 17 17 ---------------------------------------------------- Total $ (23) $ (6) $ (29) $ (46) $ 2 $(44) --------------------------------------------------------------------- * Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation