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Press release from GlobeNewswire (a Nasdaq OMX company)

Kellogg Company Announces Third-Quarter Results -- Solid Underlying Performance

Thursday, November 01, 2012

Kellogg Company Announces Third-Quarter Results -- Solid Underlying Performance05:00 EDT Thursday, November 01, 2012BATTLE CREEK, Mich., Nov. 1, 2012 (GLOBE NEWSWIRE) -- Kellogg Company (NYSE:K) today announced third quarter 2012 reported net sales of $3.7 billion, an increase of 12.3 percent from the third quarter of 2011. Internal net sales increased by 2.8 percent in the third quarter. Reported operating profit was $479 million, an increase of 3.2 percent; internal operating profit declined by 4.9 percent. Higher commodity costs, last month's recall, and a high single-digit increase in brand-building investment all had an impact on operating profit. Internal results exclude the effects of foreign currency translation, the results from the recently-acquired Pringles business, integration costs, and divestitures. Reported third quarter 2012 net earnings were $296 million, or $0.82 per diluted share, an increase of 2.5 percent from the $0.80 per diluted share reported in the third quarter of 2011. This quarter's reported earnings per share included approximately $0.04 of integration costs related to the acquisition of Pringles. The cost of the recall announced last month was approximately $0.06 per share, which was offset by better-than-expected performance from the Pringles business and certain below-the-line items. "We're pleased with the improving trends in our underlying performance, which is in-line with our expectations and includes strong revenue growth in many of our businesses," said John Bryant, Kellogg Company's president and chief executive officer. "We're also pleased that the Pringles business performed better during the quarter than we had expected. While it's early, we remain optimistic regarding the potential of this iconic brand."North America Kellogg North America's third quarter reported net sales increased by 11.1 percent to $2.5 billion; internal net sales increased by 3.7 percent, including the impact of last month's recall. The U.S. Morning Foods and Kashi segment posted internal net sales growth of 5.4 percent. The segment posted strong performance in both the cereal and toaster pastry businesses during the quarter. Internal net sales growth in the U.S. Snacks business was 0.3 percent; this growth, however, built on the strong five percent growth posted in the third quarter of last year. The U.S. Specialty segment posted third quarter internal net sales growth of 5.5 percent.  The North America Other segment reported internal net sales growth of 5.2 percent as the result of good rates of growth in the Frozen Foods business. Including the impact of the recall, North America's reported operating profit increased by 6.8 percent and internal operating profit decreased by 1.6 percent. International Kellogg International's reported net sales increased to $1.3 billion, or by 14.8 percent from the third quarter of 2011; internal net sales increased by one percent. The Latin American business posted quarterly internal net sales growth of 3.6 percent. Internal net sales of the European business decreased by 2.5 percent, a sequential improvement over the performance posted earlier this year, as expected. Within this segment, the U.K. business posted increased internal net sales. The Asia Pacific segment posted internal net sales growth of 6.8 percent in the quarter as the result of good performance in Australia, South Africa, and India. Kellogg International's reported third quarter 2012 operating profit declined by 2.7 percent; internal operating profit declined by 10.5 percent, due to results in Europe and a strong increase in investment in brand building in both Asia Pacific and Latin America. Interest and Tax Interest expense was $73 million in the third quarter. The effective tax rate was 28.8 percent. Cash flow Year-to-date cash flow, defined as cash from operating activities less capital expenditure, was $1,113 million through the end of the third quarter, a year-over-year increase of $236 million. This includes a working-capital benefit from the acquisition of Pringles and lower capital expenditure than in the comparable period of 2011.Full-Year 2012 Guidance The company reaffirmed its guidance for full-year internal net sales growth of between two and three percent. Due to the cost of last month's recall, the company now expects that full-year internal operating profit will decline between four and six percent. The company also reaffirmed its guidance for as-reported earnings per share to be in a range between $3.18 and $3.30 per share, including the cost of the recall and the anticipated impact of the Pringles acquisition.  Bryant continued, "Our third quarter results reflect the continued progress we have made in our performance and are testament to the hard work of Kellogg's employees around the world."Conference Call / Webcast Kellogg will host a conference call to discuss these results on November 1, 2012 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) 338-8373 in the U.S., and (973) 872-3000 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 Driven to enrich and delight the world through foods and brands that matter, Kellogg Company (NYSE:K) is the world's leading producer of cereal, second largest producer of cookies and crackers and - through the May 2012 acquisition of the iconic Pringles® business - the world's second largest savory snacks company. In addition, Kellogg is a leading producer of frozen foods. Every day, our well-loved brands - produced in 18 countries and marketed in more than 180 countries - nourish families so they can flourish and thrive. With 2011 sales of more than $13 billion, these brands include Cheez-It®, Coco Pops®, Corn Flakes®, Eggo®, Frosted Flakes®, Kashi®, Keebler®, Kellogg's®, Mini-Wheats®, Pop-Tarts®, Pringles®, Rice Krispies®, Special K®, and many more. To learn more about Kellogg Company, including our corporate responsibility initiatives and rich heritage, please 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 integration of the Pringles® business, 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 ability to integrate the Pringles® business and the realization of the anticipated benefits from the acquisition in the amounts and at the times expected, 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 update them publicly.Kellogg Company and SubsidiariesCONSOLIDATED STATEMENT OF INCOME(millions, except per share data)     Quarter ended Year-to-date period ended (Results are unaudited)September 29, 2012 October 1, 2011September 29, 2012 October 1, 2011          Net sales$3,720 $3,312$10,634 $10,183          Cost of goods sold2,278 1,9626,407 5,969Selling, general and administrative expense963 8862,728 2,635          Operating profit479 4641,499 1,579          Interest expense73 58195 178Other income (expense), net11 (9)31 (10)          Income before income taxes 417 3971,335 1,391Income taxes120 107379 394Earnings (loss) from joint ventures(1)  --(1)  --Net income$296 $290$955 $997Net income (loss) attributable to noncontrolling interests  --  --  -- (2)Net income attributable to Kellogg Company $296 $290$955 $999          Per share amounts:      Basic$.83 $.81$2.67 $2.75Diluted$.82 $.80$2.66 $2.73          Dividends per share$.440 $.430$1.300 $1.240          Average shares outstanding:      Basic358 360357 363Diluted359 363359 365          Actual shares outstanding at period end358 359  Kellogg Company and SubsidiariesSELECTED OPERATING SEGMENT DATA           (millions)    Quarter ended  Year-to-date period ended (Results are unaudited)September 29, 2012 October 1, 2011September 29, 2012 October 1, 2011          Net sales         U.S. Morning Foods & Kashi$946 $897$2,826 $2,782 U.S. Snacks865 7272,410 2,181 U.S. Specialty264 234864 789 North America Other388 3591,125 1,060 Europe 685 5851,836 1,840 Latin America292 274836 816 Asia Pacific280 236737 715 Consolidated $3,720 $3,312$10,634 $10,183                    Operating profit          U.S. Morning Foods & Kashi$137 $134$479 $491 U.S. Snacks116 94351 329 U.S. Specialty62 64188 185 North America Other66 65206 198 Europe84 84234 287 Latin America35 43134 152 Asia Pacific29 2379 79 Total Reportable Segments529 5071,671 1,721 Corporate (50) (43)(172) (142) Consolidated $479 $464$1,499 $1,579    Kellogg Company and SubsidiariesCONSOLIDATED STATEMENT OF CASH FLOWS (millions)     Year-to-date period ended (unaudited)September 29, 2012October 1, 2011      Operating activities     Net income$955 $997 Adjustments to reconcile net income to      operating cash flows:      Depreciation and amortization302 270  Deferred income taxes(40) (2)  Other 57 133 Postretirement benefit plan contributions(43) (187) Changes in operating assets and liabilities144 58    Net cash provided by operating activities1,375 1,269    Investing activities     Additions to properties(262) (392) Acquisitions, net of cash acquired(2,674)  -- Other 8 11    Net cash used in investing activities(2,928) (381)    Financing activities     Net issuances of notes payable112 689 Issuances of long-term debt1,727  397 Reductions of long-term debt -- (946) Net issuances of common stock87 265 Common stock repurchases  (63) (693) Cash dividends(464) (452) Other (2) 10    Net cash provided by (used in) financing activities1,397 (730)     Effect of exchange rate changes on cash and cash equivalents 1 (20)     Increase (decrease) in cash and cash equivalents(155) 138 Cash and cash equivalents at beginning of period460 444    Cash and cash equivalents at end of period$305 $582       Supplemental financial data:           Cash Flow (operating cash flow less property additions) (a)$1,113 $877        (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 SubsidiariesCONSOLIDATED BALANCE SHEET (millions, except per share data)   September 29, 2012 December 31, 2011   (unaudited)  *      Current assets     Cash and cash equivalents$305 $460 Accounts receivable, net 1,414  1,188 Inventories:      Raw materials and supplies 292  247  Finished goods and materials in process 987  885 Deferred income taxes 172  149 Other prepaid assets 136  98     Total current assets3,306 3,027       Property, net of accumulated depreciation      of $5,132 and $4,8473,599 3,281 Goodwill5,025 3,623 Other intangibles, net of accumulated amortization      of $50 and $492,255 1,454 Pension233 150 Other assets436 366    Total assets$14,854 $11,901      Current liabilities     Current maturities of long-term debt$1,510 $761 Notes payable362 234 Accounts payable1,338 1,189 Accrued advertising and promotion533 410 Accrued income taxes 16  66 Accrued salaries and wages250 242 Other current liabilities505 411    Total current liabilities4,514 3,313       Long-term debt6,065 5,037 Deferred income taxes 643 637 Pension liability564 560 Nonpension postretirement benefits199 188 Other liabilities431 404      Commitments and contingencies          Equity     Common stock, $.25 par value105 105 Capital in excess of par value553 522 Retained earnings7,196 6,721 Treasury stock, at cost(3,095) (3,130) Accumulated other comprehensive income (loss) (2,323) (2,458)      Total Kellogg Company equity2,436 1,760      Noncontrolling interests 2 2      Total equity2,438 1,762    Total liabilities and equity$14,854 $11,901 * Condensed from audited financial statements.  Kellogg Company and SubsidiariesAnalysis of net sales and operating profit performance                       Third quarter of 2012 versus 2011   U.S.                     Morning Foods U.S. U.S. North America North   Latin Asia Corp- Consoli- (dollars in millions) & Kashi Snacks Specialty Other America Europe America Pacific orate dated2012 net sales $ 946  $ 865  $ 264  $ 388  $ 2,463  $ 685  $ 292  $ 280  $ --  $ 3,720 2011 net sales $ 897  $ 727  $ 234  $ 359  $ 2,217  $ 585  $ 274  $ 236  $ --  $ 3,312 % change - 2012 vs. 2011:                   Volume (tonnage) (a)       .5% -2.2% -3.5% 9.0%  --  .1% Pricing/mix         3.2% -.3% 7.1% -2.2%  --  2.7%Subtotal - internal business (b)5.4%.3%5.5%5.2%3.7%-2.5%3.6%6.8% -- 2.8% Acquisitions (c) --% 18.7% 7.4% 3.2% 7.4% 25.7% 6.6% 18.4%  --  11.3% Dispositions (d) --% --% --% --% --% --% --% -2.8%  --  -.2% Foreign currency impact --% --% --% -.2% --% -6.0% -3.6% -3.9%  --  -1.6%Total change5.4%19.0%12.9%8.2%11.1%17.2%6.6%18.5% -- 12.3%     U.S.                     Morning Foods U.S. U.S. North America North   Latin Asia Corp- Consoli- (dollars in millions) & Kashi Snacks Specialty Other America Europe America Pacific orate dated2012 operating profit  $ 137  $ 116  $ 62  $ 66  $ 381  $ 84  $ 35  $ 29  $ (50) $ 479 2011 operating profit $ 134  $ 94  $ 64  $ 65  $ 357  $ 84  $ 43  $ 23  $ (43) $ 464 % change - 2012 vs. 2011:                  Internal business (b)2.7%-3.0%-8.6%-1.4%-1.6%-7.7%-16.7%-3.4%-6.1%-4.9% Acquisitions (c) --% 33.5% 5.5% 3.2% 10.4% 19.1% 2.0% 27.3% -6.4% 12.4% Dispositions (d) --% --% --% --% --% --% --% 7.9% --% .4% Integration impact (e) --% -7.8% --% --% -2.1% -7.9% -.8% -2.6% -7.8% -3.9% Foreign currency impact -.1% --% --% --% .1% -4.0% -.6% -.8% --% -.8%Total change2.6%22.7%-3.1%1.8%6.8%-.5%-16.1%28.4%-20.3%3.2%                       (a) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments. (b) Internal net sales and operating profit growth for 2012, exclude the impact of acquisitions, divestitures, integration costs and impact of currency. Internal net sales and operating profit growth are non-GAAP financial measures which are reconciled to the directly comparable measures in accordance with U.S. GAAP within these tables. (c) Impact of results for the quarter ended September 29, 2012 from the acquisition of Pringles. (d) Impact of results for the quarter ended September 29, 2012 from the divestiture of Navigable Foods. (e) Includes impact of integration costs associated with the Pringles acquisition.  Kellogg Company and SubsidiariesAnalysis of net sales and operating profit performance                       Year-to-date 2012 versus 2011   U.S.                     Morning Foods U.S. U.S. North North   Latin Asia Corp- Consoli- (dollars in millions) & Kashi Snacks Specialty America Other America Europe America Pacific orate dated2012 net sales $ 2,826  $ 2,410  $ 864  $ 1,125  $ 7,225  $ 1,836  $ 836  $ 737  $ --  $ 10,634 2011 net sales $ 2,782  $ 2,181  $ 789  $ 1,060  $ 6,812  $ 1,840  $ 816  $ 715  $ --  $ 10,183 % change - 2012 vs. 2011:                   Volume (tonnage) (a)         -1.0% -6.1% -2.7% 3.9%  --  -1.8% Pricing/mix         4.0% .6% 8.6% -1.8%  --  3.5%Subtotal - internal business (b)1.6%2.2%6.7%5.8%3.0%-5.5%5.9%2.1% -- 1.7% Acquisitions (c) --% 8.3% 2.9% 1.4% 3.2% 10.9% 2.4% 8.0%  --  4.9% Dispositions (d) --% --% --% --% --% --% --% -3.3%  --  -.2% Foreign currency impact --% --% --% -1.1% -.1% -5.6% -5.9% -3.7%  --  -2.0%Total change1.6%10.5%9.6%6.1%6.1%-.2%2.4%3.1% -- 4.4%     U.S.                     Morning Foods U.S. U.S. North North   Latin Asia Corp- Consoli- (dollars in millions) & Kashi Snacks Specialty America Other America Europe America Pacific orate dated2012 operating profit  $ 479  $ 351  $ 188  $ 206  $ 1,224  $ 234  $ 134  $ 79  $ (172) $ 1,499 2011 operating profit $ 491  $ 329  $ 185  $ 198  $ 1,203  $ 287  $ 152  $ 79  $ (142) $ 1,579 % change - 2012 vs. 2011:                  Internal business (b)-2.6%-2.6%-1.1%4.5%-1.2%-16.3%-7.4%-11.4%-2.1%-5.4% Acquisitions (c) --% 11.9% 2.7% 1.1% 3.9% 6.1% .6% 7.9% -2.1% 4.3% Dispositions (d) --% --% --% --% --% --% --% 6.7% --% .4% Integration impact (e) --% -2.6% --% --% -.7% -4.9% -.3% -1.8% -17.8% -3.2% Foreign currency impact .1% --% --% -1.3% -.3% -3.5% -4.4% -.7% --% -1.2%Total change-2.5%6.7%1.6%4.3%1.7%-18.6%-11.5%.7%-22.0%-5.1%                       (a) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments. (b) Internal net sales and operating profit growth for 2012, exclude the impact of acquisitions, divestitures, transaction and integration costs and impact of currency. Internal net sales and operating profit growth are non-GAAP financial measures which are reconciled to the directly comparable measures in accordance with U.S. GAAP within these tables. (c) Impact of results for the year-to-date period ended September 29, 2012 from the acquisition of Pringles. (d) Impact of results for the year-to-date period ended September 29, 2012 from the divestiture of Navigable Foods. (e) Includes impact of transaction and integration costs associated with the Pringles acquisition.  Kellogg Company and SubsidiariesUp-Front Costs*$ millions                 Quarter ended September 29, 2012 Year-to-date period ended September 29, 2012   Cost of goods sold (a) Selling, general and administrative expense Total Cost of goods sold (a) Selling, general and administrative expense Total2012             U.S. Morning Foods & Kashi  $ 3  $ 1  $ 4  $ 7  $ 4  $ 11 U.S. Snacks  2  2  4  4  6  10 U.S. Specialty  --  --  --  --  1  1 North America Other  2  --  2  2  1  3 Europe  --  --  --  3  --  3 Latin America  --  --  --  --  --  -- Asia Pacific  --  1  1  --  1  1 Corporate  --  --  --  --  --  -- Total  $ 7  $ 4  $ 11  $ 16  $ 13  $ 29                Quarter ended October 1, 2011 Year-to-date period ended October 1, 2011  Cost of goods sold (a) Selling, general and administrative expense Total Cost of goods sold (a) Selling, general and administrative expense Total2011             U.S. Morning Foods & Kashi  $ --  $ 1  $ 1  $ 6  $ 3  $ 9 U.S. Snacks  2  8  10  5  15  20 U.S. Specialty  --  --  --  --  1  1 North America Other  1  --  1  3  --  3 Europe  4  --  4  12  --  12 Latin America  --  --  --  --  1  1 Asia Pacific  --  --  --  2  --  2 Corporate  --  --  --  --  --  -- Total  $ 7  $ 9  $ 16  $ 28  $ 20  $ 48  2012 Variance - better(worse) than 2011           U.S. Morning Foods & Kashi  $ (3)  $ --  $ (3)  $ (1)  $ (1)  $ (2) U.S. Snacks  --  6  6  1  9  10 U.S. Specialty  --  --  --  --  --  -- North America Other  (1)  --  (1)  1  (1)  -- Europe  4  --  4  9  --  9 Latin America  --  --  --  --  1  1 Asia Pacific  --  (1)  (1)  2  (1)  1 Corporate  --  --  --  --  --  -- Total  $ --  $ 5  $ 5  $ 12  $ 7  $ 19               * Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation.  (a) Includes expense associated with capital projects across our supply chain network incurred primarily in North America.  Kellogg Company and SubsidiariesTransaction and Integration Costs*$ millions                     Quarter ended September 29, 2012 Year-to-date period ended September 29, 2012   Cost of goods sold Selling, general and administrative expense Other Income/Expense Total Cost of goods sold Selling, general and administrative expense Other Income/Expense Total2012                 U.S. Snacks  $ --  $ 8  $ --  $ 8  $ --  $ 9  $ --  $ 9 Europe  1  6  --  7  1  13  --  14 Asia Pacific  --  --  --  --  --  1  --  1 Corporate  --  3  --  3  --  25  5  30 Total  $ 1  $ 17  $ --  $ 18  $ 1  $ 48  $ 5  $ 54                  * Transaction and integration costs are charges incurred by the Company as a direct result of the work performed for the acquisition of the Pringles business. No transaction costs were incurred during the quarter ended September 29, 2012. CONTACT: Analyst Contact: Simon Burton, CFA (269) 961-6636 Media Contact: Kris Charles (269) 961-3799