EX-99.1 2 k48129exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
             
(KELLOGGS LOGO)   Kellogg Company News
 
           
 
  For release:   July 30, 2009    
 
  Analyst Contacts:   Joel Wittenberg   (269) 961-9089
 
      Kim Stumm   (269) 961-3565
 
  Media Contact:   Kris Charles   (269) 961-3799
Kellogg Delivers Strong Q2 2009; Raises Full-Year Guidance
     BATTLE CREEK, Mich. — Kellogg Company (NYSE: K) today reported second quarter 2009 financial results that include double-digit growth in net earnings and internal operating profit. The Company posted these better-than-expected results despite ongoing cost pressures and the challenging economic environment. Second quarter net earnings were $354 million, a 13% increase from last year’s second quarter net earnings of $312 million. Earnings per diluted share were $0.92 for the quarter, a year-over-year increase of 12% on a reported basis and 23% higher on a currency-neutral basis despite higher up-front costs.
     “We remain committed to delivering sustainable and dependable performance as we work through the current tough economic environment,” said David Mackay, Kellogg’s chief executive officer. “This focus continued to provide strong returns in the second quarter which were ahead of expectations. We now enter the second half of the year with increased confidence in our ability to deliver on our long-term targets, as well as the visibility and flexibility to increase our investments for future growth.”
     Kellogg Company is on track to deliver $1 billion in annualized savings from efficiency initiatives by year-end 2011. In addition, the Company announced that it plans to increase up-front cost investments for savings initiatives to approximately $0.26 per share for 2009 while increasing current 2009 earnings per share guidance.
     Second quarter reported net sales were $3.2 billion, representing a 3% decrease versus the second 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 second quarter net sales growth of 2% on a reported basis and 3% on an internal basis. Internal net sales growth for Kellogg North America was comprised of internal net sales growth delivery from North America Retail Cereal of 4%, North America Frozen and Specialty Channels of 5%, and North America Snacks of 3%. While second quarter top-line growth for North America Snacks was negatively impacted by the peanut-related recall, most of the previously affected products returned to the marketplace by quarter-end.

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     Kellogg International posted a second quarter net sales decline of 13% on a reported basis, however net sales grew 2% on an internal basis, which excludes the effects of currency translation and acquisitions. Internal net sales for Kellogg International was comprised of Latin America’s internal net sales growth of 8%, Asia Pacific’s growth of 3%, and Europe’s decline of 1% versus the second quarter of last year. Challenging negotiations with some European retailers in the first quarter, though now resolved, negatively impacted sales in that region for the second quarter.
     Operating profit for the second quarter of $553 million was a solid 4% increase on a reported basis, and a strong 14% increase on an internal basis. Total up-front costs for cost-reduction initiatives totaled approximately $0.07 per share, out-pacing 2008’s second quarter up-front costs of $0.04 per share. Second quarter 2009 gross margin of 43.5% represents a 30 basis points increase over last year’s second quarter on a reported basis.
     Second quarter earnings per share benefitted from favorability in below the line items such as other income and expense, interest expense and a lower effective tax rate.
     Kellogg Company continued to deliver strong cash flow, generating $535 million during the first half of 2009, including an unfavorable impact from foreign exchange. This cash flow, defined as cash from operating activities less capital expenditures, surpasses the 2008 first half cash flow of $510 million. For the full-year 2009, Kellogg continues to anticipate cash flow, as defined, of between $1.05 — $1.15 billion. “Our continuing strong performance in the weak economy demonstrates the resilience and effectiveness of our Sustainable Growth model, as well as the benefits of our financial discipline,” said Mackay.
Kellogg Raises Full-Year 2009 Guidance
     Supported by the strong first half performance, continuing momentum, and the acceleration of savings realization, Kellogg Company raised its full-year 2009 earnings per share guidance to the range of 8 — 10% on a currency-neutral basis, which excludes the effects of foreign currency translation. Based on current rates, the Company now expects a negative impact from foreign currency exchange of approximately 6% to reported earnings per share for the full year. Importantly, Kellogg’s guidance for the year includes a substantial increase in up-front charges for cost reduction initiatives to approximately $0.26 per share from the initial expectation of $0.14 per share.

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     Kellogg also raised full-year guidance for internal operating profit growth to the high end of its previously guided mid single-digit range. Management affirmed its internal net sales growth guidance of 3 — 4% for the year as well.
     CEO Mackay concluded, “With strong brands, solid business fundamentals and our focus on managing the business for the long term, Kellogg Company is well positioned in the marketplace to continue delivering sustainable and dependable performance.”
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®, 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 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.
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

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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.

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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)
                                 
    Quarter ended   Year-to-date period ended
    July 4,   June 28,   July 4,   June 28,
(Results are unaudited)   2009   2008   2009   2008
 
Net sales
  $ 3,229     $ 3,343     $ 6,398     $ 6,601  
 
                               
Cost of goods sold
    1,825       1,899       3,692       3,793  
Selling, general and administrative expense
    851       914       1,624       1,733  
 
 
                               
Operating profit
    553       530       1,082       1,075  
 
                               
Interest expense
    67       77       134       159  
Other income (expense), net
    9       (8 )     9       (19 )
 
 
                               
Income before income taxes
    495       445       957       897  
Income taxes
    141       133       284       270  
Earnings (loss) from joint ventures
    (1 )           (1 )      
 
Net income
  $ 353     $ 312     $ 672     $ 627  
 
Net income (loss) attributable to noncontrolling interests (a)
    (1 )           (3 )      
 
Net income attributable to Kellogg Company (a)
  $ 354     $ 312     $ 675     $ 627  
 
 
                               
Per share amounts:
                               
Basic
  $ .93     $ .82     $ 1.77     $ 1.64  
Diluted
  $ .92     $ .82     $ 1.76     $ 1.63  
 
                               
Dividends per share
  $ .3400     $ .3100     $ .6800     $ .6200  
 
 
                               
Average shares outstanding:
                               
Basic
    383       379       382       382  
 
Diluted
    383       382       383       386  
 
 
                               
Actual shares outstanding at period end
                    383       379  
 
 
(a)   SFAS No. 160, “Noncontrolling interests in Consolidated Financial Statements” requires retrospective presentation of amounts related to partially-owned subsidiaries.
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Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
                                 
    Quarter ended   Year-to-date period ended
(millions)   July 4,   June 28,   July 4,   June 28,
(Results are unaudited)   2009   2008   2009   2008
 
Net sales
                               
North America
  $ 2,176     $ 2,127     $ 4,387     $ 4,275  
Europe
    617       746       1,174       1,423  
Latin America
    258       283       488       536  
Asia Pacific (a)
    178       187       349       367  
 
Consolidated
  $ 3,229     $ 3,343     $ 6,398     $ 6,601  
 
 
                               
Segment operating profit
                               
North America
  $ 426     $ 380     $ 829     $ 783  
Europe
    104       122       199       234  
Latin America
    57       60       106       105  
Asia Pacific (a)
    21       22       46       53  
Corporate
    (55 )     (54 )     (98 )     (100 )
 
Consolidated
  $ 553     $ 530     $ 1,082     $ 1,075  
 
 
(a)   Includes Australia, Asia and South Africa.

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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)
                 
    Year-to-date period ended
    July 4,   June 28,
(unaudited)   2009   2008
 
Operating activities
               
Net income
  $ 672     $ 627  
Adjustments to reconcile net income to operating cash flows:
               
Depreciation and amortization
    189       182  
Deferred income taxes
    30       (3 )
Other
    (8 )     71  
Postretirement benefit plan contributions
    (84 )     (48 )
Changes in operating assets and liabilities
    (103 )     (140 )
 
 
               
Net cash provided by operating activities
    696       689  
 
 
               
Investing activities
               
Additions to properties
    (161 )     (179 )
Acquisitions of businesses, net of cash acquired
          (133 )
Property disposals
    1       10  
 
 
               
Net cash used in investing activities
    (160 )     (302 )
 
 
               
Financing activities
               
Net issuances (reductions) of notes payable
    (882 )     152  
Issuances of long-term debt
    745       756  
Reductions of long-term debt
          (465 )
Issuances of common stock
    18       61  
Common stock repurchases
          (650 )
Cash dividends
    (260 )     (236 )
Other
    2       9  
 
 
               
Net cash used in financing activities
    (377 )     (373 )
 
 
               
Effect of exchange rate changes on cash
    10       18  
 
 
               
Increase in cash and cash equivalents
    169       32  
Cash and cash equivalents at beginning of period
    255       524  
 
 
               
Cash and cash equivalents at end of period
  $ 424     $ 556  
 
 
               
 
Supplemental Financial Data:
               
 
Cash Flow (operating cash flow less property additions) (a)
  $ 535     $ 510  
 
 
(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.
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Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET

(millions, except per share data)
                 
    July 4,   January 3,
    2009   2009
    (unaudited)   *
 
Current assets
               
Cash and cash equivalents
  $ 424     $ 255  
Accounts receivable, net
    1,191       1,100  
Inventories:
               
Raw materials and supplies
    223       203  
Finished goods and materials in process
    610       694  
Deferred income taxes
    105       112  
Other prepaid assets
    162       157  
 
 
               
Total current assets
    2,715       2,521  
 
               
Property, net of accumulated depreciation of $4,405 and $4,171
    2,977       2,933  
Goodwill
    3,639       3,637  
Other intangibles, net of accumulated amortization of $43 and $42
    1,460       1,461  
Pension
    169       96  
Other assets
    302       298  
 
 
               
Total assets
  $ 11,262     $ 10,946  
 
 
               
Current liabilities
               
Current maturities of long-term debt
  $ 1     $ 1  
Notes payable
    508       1,387  
Accounts payable
    1,052       1,135  
Accrued advertising and promotion
    410       357  
Accrued income taxes
          51  
Accrued salaries and wages
    231       280  
Other current liabilities
    374       341  
 
 
               
Total current liabilities
    2,576       3,552  
 
               
Long-term debt
    4,808       4,068  
Deferred income taxes
    330       300  
Pension liability
    621       631  
Other liabilities
    955       940  
 
               
Commitments and contingencies
               
 
               
Equity
               
Common stock, $.25 par value
    105       105  
Capital in excess of par value
    441       438  
Retained earnings
    5,246       4,836  
Treasury stock, at cost
    (1,755 )     (1,790 )
Accumulated other comprehensive income (loss)
    (2,069 )     (2,141 )
 
 
               
Total Kellogg Company equity
    1,968       1,448  
 
               
Noncontrolling interests (a)
    4       7  
 
 
               
Total equity
    1,972       1,455  
 
 
               
Total liabilities and equity
  $ 11,262     $ 10,946  
 
 
*   Condensed from audited financial statements.
 
(a)   SFAS No. 160, “Noncontrolling interests in Consolidated Financial Statements” requires retrospective presentation of amounts related to partially-owned subsidiaries.
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Kellogg Company and Subsidiaries
     Analysis of net sales and operating profit performance
     Second quarter of 2009 versus 2008
                                                 
    North           Latin   Asia Pacific           Consoli-
(dollars in millions)   America   Europe   America   (a)   Corporate   dated
 
2009 net sales
  $ 2,176     $ 617     $ 258     $ 178     $     $ 3,229  
 
2008 net sales
  $ 2,127     $ 746     $ 283     $ 187     $     $ 3,343  
 
% change — 2009 vs. 2008:
                                               
Volume (tonnage) (b)
    .4 %     -5.5 %     3.7 %     -.7 %           -.5 %
Pricing/mix
    2.9 %     4.1 %     4.5 %     3.6 %           3.1 %
 
Subtotal — internal business
    3.3 %     -1.4 %     8.2 %     2.9 %           2.6 %
Acquisitions (c)
    .1 %                 5.6 %           .4 %
Foreign currency impact
    -1.1 %     -16.0 %     -16.9 %     -12.9 %           -6.4 %
 
Total change
    2.3 %     -17.4 %     -8.7 %     -4.4 %           -3.4 %
 
 
    North           Latin   Asia Pacific           Consoli-
(dollars in millions)   America   Europe   America   (a)   Corporate   dated
 
2009 operating profit
  $ 426     $ 104     $ 57     $ 21     $ (55 )   $ 553  
 
2008 operating profit
  $ 380     $ 122     $ 60     $ 22     $ (54 )   $ 530  
 
% change — 2009 vs. 2008:
                                               
Internal business
    13.9 %     3.5 %     12.3 %     35.9 %     -1.0 %     13.5 %
Acquisitions (c)
    -.1 %                 -19.6 %           -.9 %
Foreign currency impact
    -1.5 %     -18.7 %     -17.8 %     -20.2 %           -8.2 %
 
Total change
    12.3 %     -15.2 %     -5.5 %     -3.9 %     -1.0 %     4.4 %
 
(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)   Impact of results for the quarterly period ended July 4, 2009 from the acquisitions of Navigable Foods, Specialty Cereal and certain assets and liabilities of IndyBake.
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Kellogg Company and Subsidiaries
     Analysis of net sales and operating profit performance

     Year-to-date 2009 versus 2008
                                                 
    North           Latin   Asia Pacific           Consoli-
(dollars in millions)   America   Europe   America   (a)   Corporate   dated
 
2009 net sales
  $ 4,387     $ 1,174     $ 488     $ 349     $     $ 6,398  
 
2008 net sales
  $ 4,275     $ 1,423     $ 536     $ 367     $     $ 6,601  
 
% change — 2009 vs. 2008:
                                               
Volume (tonnage) (b)
    -.8 %     -4.7 %     1.9 %     4.2 %           -1.1 %
Pricing/mix
    4.5 %     4.6 %     6.4 %     2.5 %           4.5 %
 
Subtotal — internal business
    3.7 %     -.1 %     8.3 %     6.7 %           3.4 %
Acquisitions (c)
    .1 %     .5 %           6.4 %           .5 %
Foreign currency impact
    -1.2 %     -17.9 %     -17.2 %     -18.0 %           -7.0 %
 
Total change
    2.6 %     -17.5 %     -8.9 %     -4.9 %           -3.1 %
 
 
    North           Latin   Asia Pacific           Consoli-
(dollars in millions)   America   Europe   America   (a)   Corporate   dated
 
2009 operating profit
  $ 829     $ 199     $ 106     $ 46     $ (98 )   $ 1,082  
 
2008 operating profit
  $ 783     $ 234     $ 105     $ 53     $ (100 )   $ 1,075  
 
% change — 2009 vs. 2008:
                                               
Internal business
    7.6 %     6.0 %     19.0 %     24.3 %     1.4 %     10.0 %
Acquisitions (c)
    -.1 %                 -12.9 %           -.7 %
Foreign currency impact
    -1.6 %     -20.9 %     -18.0 %     -23.9 %           -8.6 %
 
Total change
    5.9 %     -14.9 %     1.0 %     -12.5 %     1.4 %     .7 %
 
(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 July 4, 2009 from the acquisitions of United Bakers, Navigable Foods, Specialty Cereal and certain assets and liabilities of IndyBake.
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Kellogg Company and Subsidiaries
Up-front Costs
(a)
$ millions
                                                 
    Quarter ended July 4, 2009   Year-to-date period ended July 4, 2009
            Selling, general and                   Selling, general and    
    Cost of goods   administrative           Cost of goods   administrative    
    sold   expense   Total   sold   expense   Total
     
2009  
                                                   
  North America
  $ 18     $ 11     $ 29     $ 34     $ 11     $ 45  
  Europe
    9             9       10             10  
  Latin America
    1             1       2             2  
  Asia Pacific
    1             1       1             1  
  Corporate
                                   
     
    Total
  $ 29     $ 11     $ 40     $ 47     $ 11     $ 58  
     
                                                 
    Quarter ended June 28, 2008   Year-to-date period ended June 28, 2008
            Selling, general and                   Selling, general and    
    Cost of goods   administrative           Cost of goods   administrative    
     sold   expense   Total   sold   expense   Total
     
2008
                                               
  North America
  $     $ 1     $ 1     $     $ 2     $ 2  
  Europe
    4             4       13             13  
  Latin America
                      11             11  
  Asia Pacific
                                   
  Corporate
          17       17             17       17  
     
    Total
  $ 4     $ 18     $ 22     $ 24     $ 19     $ 43  
     
                                                 
    Quarter ended June 28, 2008   Year-to-date period ended June 28, 2008
            Selling, general and                   Selling, general and    
    Cost of goods   administrative           Cost of goods   administrative    
     sold   expense   Total   sold   expense   Total
     
2009 Variance – better(worse) than 2008
                                               
  North America
  $ (18 )   $ (10 )   $ (28 )   $ (34 )   $ (9 )   $ (43 )
  Europe
    (5 )           (5 )     3             3  
  Latin America
    (1 )           (1 )     9             9  
  Asia Pacific
    (1 )           (1 )     (1 )           (1 )
  Corporate
          17       17             17       17  
     
    Total
  $ (25 )   $ 7     $ (18 )   $ (23 )   $ 8     $ (15 )
     
 
(a)   Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation.

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