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Press release from GlobeNewswire (a Nasdaq OMX company)

Kellogg Company Delivers Strong Second Quarter Performance; Reaffirms 2011 Currency-Neutral EPS Guidance

Thursday, July 28, 2011

Kellogg Company Delivers Strong Second Quarter Performance; Reaffirms 2011 Currency-Neutral EPS Guidance05:00 EDT Thursday, July 28, 2011BATTLE CREEK, Mich., July 28, 2011 (GLOBE NEWSWIRE) -- Kellogg Company (NYSE:K) today announced second quarter 2011 reported net sales growth of 11 percent to $3.4 billion. Internal net sales, which exclude the effects of foreign currency translation, rose 6 percent over the same period. Second quarter 2011 operating profit of $543 million increased 12 percent on a reported basis and 8 percent on an internal basis.  While the Company was lapping soft comparisons in second quarter 2010, the performance reflected strong innovation and the benefit from pricing actions taken over the first half 2011 which helped offset higher input costs. Reported earnings for the second quarter 2011 were $343 million, or $0.94 per diluted share, an increase of 19 percent from second quarter 2010 reported earnings of $0.79 per diluted share. On a currency-neutral basis, second quarter 2011 earnings per share grew 13 percent. "We continue to build momentum as demonstrated by our solid first half top-line results. During the second quarter, we benefited from improved net price realization and were pleased with the performance of our strong innovation," said John Bryant, Kellogg Company's president and chief executive officer. "As we look to the back half of 2011, we expect continued sales growth driven by price and mix and are confident in our innovation line up and commercial plans."North America During the second quarter 2011, Kellogg North America net sales were $2.2 billion, an 8 percent increase on both a reported and internal basis. On an internal basis, North America Retail Cereal net sales rose 13 percent reflecting higher net price realization, the strength of recently launched innovation, as well as easier comparisons to second quarter 2010.  North America Retail Snacks delivered internal net sales growth of 3 percent driven by the crackers business.  North America Frozen and Specialty Channels internal net sales grew 10 percent. Second quarter 2011 North America operating profit increased 12 percent on a reported basis and 11 percent on an internal basis.International Kellogg International posted second quarter 2011 reported net sales of $1.2 billion, growing 16 percent year-over-year supported by net price realization and innovation. On an internal basis, excluding the effects of currency translation, net sales increased 3 percent. Compared with the same period last year, internal net sales in Europe increased 1 percent, Latin America internal net sales grew 7 percent, and Asia Pacific internal net sales rose 4 percent.   Reported second quarter 2011 operating profit for the Kellogg International business increased 12 percent. On an internal basis, operating profit was flat to a year earlier as recent price increases helped offset the impact of higher input costs.Interest and Tax Kellogg's interest expense was $53 million for the quarter. The second quarter 2011 effective tax rate was 30.1 percent.Cash flow Cash flow, defined as cash from operating activities less capital expenditures, was $403 million for the first half of 2011, compared to $446 million in the first half of 2010. Kellogg repurchased nearly $190 million of shares during the second quarter, and more than $500 million in the first half of 2011, under its $2.5 billion three-year share repurchase authorization.Kellogg 2011 Guidance The Company expanded its full-year 2011 internal net sales growth guidance to a range of 4 to 5 percent. The increased net sales outlook is expected to offset anticipated higher cost pressures. The Company reiterated its 2011 internal operating profit guidance of approximately flat to down two percent year-over-year. Kellogg also reaffirmed its full-year 2011 guidance of currency-neutral earnings per share growth in the low single-digit range. Assuming no foreign exchange impact, this implies earnings per share in the range of $3.33 to $3.40. The Company estimates a foreign exchange benefit of approximately $0.09, which would result in reported 2011 EPS guidance of $3.42 to $3.49.Conference Call / Webcast Kellogg Company will host a conference call to discuss these results on July 28, 2011 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 For more than 100 years, consumers have counted on Kellogg for great-tasting, high-quality and nutritious foods. Kellogg Company, with 2010 sales of more than $12 billion, 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. Kellogg Company's beloved brands, which are manufactured in 18 countries and marketed in more than 180 countries, include Kellogg's®, Keebler®, Pop-Tarts®, Eggo®, Cheez-It®, All-Bran®, Mini-Wheats®, Nutri-Grain®, Rice Krispies®, Special K®, Chips Deluxe®, Famous Amos®, Sandies®, Austin®, Club®, Murray®, Kashi®, Bear Naked®, Morningstar Farm®, Gardenburger® and Stretch Island®. For more information on the Kellogg Company, including our corporate responsibility initiatives, visit www.kelloggcompany.com. The Kellogg Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3194Forward-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," "anticipates," "projects," "estimates,"  "implies," "can," 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 food safety, 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.          Kellogg Company and Subsidiaries    CONSOLIDATED STATEMENT OF INCOME         (millions, except per share data)               Quarter ended Year-to-date period ended (Results are unaudited)July 2, 2011 July 3, 2010July 2, 2011 July 3, 2010            Net sales$3,386 $3,062$6,871 $6,380            Cost of goods sold1,943 1,7574,007 3,650Selling, general and administrative expense900 8221,749 1,610            Operating profit543 4831,115 1,120            Interest expense53 61120 126Other income (expense), net  (1)  7 (1)  8            Income before income taxes489 429994 1,002Income taxes147 128287 284Net income$342 $301$707 $718Net income (loss) attributable to noncontrolling interests(1) (1)(2) (2)Net income attributable to Kellogg Company$343 $302$709 $720            Per share amounts:        Basic  $.94 $.80$1.95 $1.89Diluted$.94 $.79$1.93 $1.88            Dividends per share$.4050 $.3750$.8100 $.7500            Average shares outstanding:        Basic  363  381364  380Diluted  366  384367  384            Actual shares outstanding at period end    362  378                          Kellogg Company and Subsidiaries   SELECTED OPERATING SEGMENT DATA                     (millions)     Quarter ended Year-to-date period ended (Results are unaudited)July 2, 2011 July 3, 2010July 2, 2011 July 3, 2010            Net sales         North America $2,231 $2,064$4,595 $4,339 Europe 634 5601,255 1,166 Latin America 281 240542 462 Asia Pacific (a)  240 198479 413 Consolidated  $3,386 $3,062$6,871 $6,380                        Segment operating profit         North America (b)$406 $364$846 $862 Europe 102 100203 205 Latin America 61 47109 92 Asia Pacific (a)25 2056 57 Corporate (b)(51) (48)(99) (96) Consolidated  $543 $483$1,115 $1,120               (a) Includes Australia, Asia and South Africa.         (b) Research and Development expense totaling $2 million for the quarter ended July 3, 2010 and $5 million for the year-to-date period ended July 3, 2010 was reallocated to Corporate from North America.        Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS   (millions)   Year-to-date period ended (unaudited)July 2,  2011July 3,  2010      Operating activities     Net income$707 $718 Adjustments to reconcile net income to  operating cash flows:      Depreciation and amortization175 178  Deferred income taxes(1) (52)  Other 25 73 Postretirement benefit plan contributions(183) (36) Changes in operating assets and liabilities(77) (288)      Net cash provided by operating activities646 593      Investing activities     Additions to properties(243) (147) Other  5 2  Net cash used in investing activities(238) (145)  Financing activities     Net issuances of notes payable687 110 Issuances of long-term debt397  -- Reductions of long-term debt(946) (1) Net issuances of common stock249 148 Common stock repurchases   (518) (266) Cash dividends(296) (286) Other  10 6      Net cash used in financing activities(417) (289)       Effect of exchange rate changes on cash and cash equivalents  22 (22)       Increase in cash and cash equivalents13 137 Cash and cash equivalents at beginning of period444 334Cash and cash equivalents at end of period$457 $471  Supplemental financial data:     Cash Flow (operating cash flow less property additions) (a)$403 $446   (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)          July 2, 2011 (unaudited)  January 1, 2011 *      Current assets     Cash and cash equivalents$457 $444 Accounts receivable, net  1,364  1,190 Inventories:      Raw materials and supplies  239  224  Finished goods and materials in process  778  832 Deferred income taxes  161  110 Other prepaid assets  137  115      Total current assets3,136 2,915       Property, net of accumulated depreciation  of $4,908 and $4,6903,246 3,128 Goodwill3,632 3,628 Other intangibles, net of accumulated amortization  of $48 and $471,455 1,456 Pension474 333 Other assets413 387      Total assets$12,356 $11,847      Current liabilities     Current maturities of long-term debt $--  $952 Notes payable734 44 Accounts payable1,208 1,149 Accrued advertising and promotion436 405 Accrued income taxes  31  60 Accrued salaries and wages205 153 Other current liabilities412 421      Total current liabilities3,026 3,184       Long-term debt5,308 4,908 Deferred income taxes 768 697 Pension liability171 265 Other liabilities615 639      Commitments and contingencies          Equity     Common stock, $.25 par value105 105 Capital in excess of par value513 495 Retained earnings6,511 6,122 Treasury stock, at cost(2,890) (2,650) Accumulated other comprehensive income (loss) (1,765) (1,914)      Total Kellogg Company equity2,474 2,158Noncontrolling interests(6) (4)Total equity2,468 2,154Total liabilities and equity$12,356 $11,847 * Condensed from audited financial statements.                            Kellogg Company and Subsidiaries   Analysis of net sales and operating profit performance               Second quarter of 2011 versus 2010 (dollars in millions) North America Europe Latin America Asia Pacific (a) Corporate Consoli- dated2011 net sales $ 2,231 $ 634 $ 281 $ 240 $ --  $ 3,3862010 net sales $ 2,064 $ 560 $ 240 $ 198 $ --  $ 3,062 % change - 2011 vs. 2010:             Volume (tonnage) (b) 1.9% -3.1% -.6% .2%  --  .6% Pricing/mix 5.6% 3.7% 7.7% 3.6%  --  5.4%Subtotal - internal business7.5%.6%7.1%3.8% -- 6.0% Foreign currency impact .6% 12.7% 10.3% 16.6%  --  4.6%Total change8.1%13.3%17.4%20.4% -- 10.6%                             (dollars in millions) North America (c) Europe Latin America Asia Pacific (a) Corporate (c) Consoli- dated2011 operating profit  $ 406 $ 102 $ 61 $ 25 $ (51) $ 5432010 operating profit $ 364 $ 100 $ 47 $ 20 $ (48) $ 483 % change - 2011 vs. 2010:            Internal business10.9%-8.9%18.9%3.1%-5.3%7.8% Foreign currency impact .7% 10.2% 11.3% 20.6%  --  4.6%Total change11.6%1.3%30.2%23.7%-5.3%12.4%               (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. (c) Research and Development expense totaling $2 million for the quarter ended July 3, 2010 was reallocated to Corporate from North America.                    Kellogg Company and Subsidiaries    Analysis of net sales and operating profit performance                 Year-to-date 2011 versus 2010 (dollars in millions) North America Europe Latin America Asia Pacific (a) Corporate Consoli- dated2011 net sales $ 4,595 $ 1,255 $ 542 $ 479 $ --  $ 6,8712010 net sales $ 4,339 $ 1,166 $ 462 $ 413 $ --  $ 6,380 % change - 2011 vs. 2010:             Volume (tonnage) (b) 1.8% -1.9% 1.6% 2.6%  --  1.2% Pricing/mix   3.6% 1.9% 7.0% .3%  --  3.3%Subtotal - internal business5.4%--%8.6%2.9% -- 4.5% Foreign currency impact .5% 7.7% 8.8% 12.9%  --  3.2%Total change5.9%7.7%17.4%15.8% -- 7.7%                   (dollars in millions) North America (c) Europe Latin America Asia Pacific (a) Corporate (c) Consoli- dated2011 operating profit   $ 846 $ 203 $ 109 $ 56 $ (99) $ 1,1152010 operating profit  $ 862 $ 205 $ 92 $ 57 $ (96) $ 1,120 % change - 2011 vs. 2010:            Internal business-2.4%-8.8%10.2%-13.8%-3.5%-3.6% Foreign currency impact .5% 7.4% 9.3% 12.4%  --  3.1%Total change-1.9%-1.4%19.5%-1.4%-3.5%-.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) Research and Development expense totaling $5 million for the year-to-date period ended July 3, 2010 was reallocated to Corporate from North America.                                  Kellogg Company and Subsidiaries   Up-Front Costs*          $ millions                           Quarter ended July 2, 2011 Year-to-date period ended July 2, 2011   Cost of goods sold Selling, general and administrative expense Total Cost of goods sold Selling, general and administrative expense Total2011             North America  $ --  $ 8  $ 8  $ 1  $ 10  $ 11 Europe  1  --  1  7  --  7 Latin America  --  1  1  --  1  1 Asia Pacific  --  --  --  1  --  1 Corporate  --  --  --  --  --  -- Total  $ 1  $ 9  $ 10  $ 9  $ 11  $ 20                 Quarter ended July 3, 2010 Year-to-date period ended July 3, 2010   Cost of goods sold Selling, general and administrative expense (a) Total Cost of goods sold Selling, general and administrative expense (a) Total2010             North America  $ 6  $ 3  $ 9  $ 13  $ 9  $ 22 Europe  5  (1)  4  8  --  8 Latin America  1  --  1  1  --  1 Asia Pacific  --  1  1  1  2  3 Corporate  --  2  2  --  2  2 Total  $ 12  $ 5  $ 17  $ 23  $ 13  $ 36  2011 Variance - better (worse) than 2010         North America  $ 6  $ (5)  $ 1  $ 12  $ (1)  $ 11 Europe  4  (1)  3  1  --  1 Latin America  1  (1)  --  1  (1)  -- Asia Pacific  --  1  1  --  2  2 Corporate  --  2  2  --  2  2 Total  $ 11  $ (4)  $ 7  $ 14  $ 2  $ 16               * Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation.  (a) Quarter end July 3, 2010 includes $2 million of SAP reimplementation costs incurred in North America. Year-to-date period ended July 3, 2010 includes $4 million of SAP reimplementation cost incurred in North America.CONTACT: Analyst Contact: Kim Stumm (269) 961-9089 Media Contact: Kris Charles (269) 961-3799