EX-99.1 2 k96061exv99w1.htm FINANCIAL RESULTS FOR THE PERIOD ENDED JULY 2, 2005 exv99w1
 

Exhibit 99.1
(KELLOGG'S LOGO)   Kellogg Company News
         
 
  For release:   July 27, 2005
 
  Analyst /Media    
 
  Contact:   Simon D. Burton, CFA (269) 961-6636
 
Kellogg Reports Strong Growth, Raises Outlook
     BATTLE CREEK, Mich. – Kellogg Company (NYSE: K) today reported excellent sales, operating profit, and earnings growth despite increased costs and significant investment in future growth.
     Reported net earnings for the quarter were $259.0 million, a 9% increase from last year’s $237.4 million. Earnings were $0.62 per diluted share, a 9% increase from last year’s $0.57 per share. Each of the Company’s reporting segments posted sales growth as a result of growth in existing products, successful innovation, and strong brand-building programs.
     “We are pleased to report another quarter of strong results,” said Jim Jenness, Kellogg’s chairman and chief executive officer. “Business momentum continued in the second quarter and we again capitalized on this strength through increased investment in future growth.”
     Reported net sales increased by 8% to $2.6 billion in the second quarter. Internal net sales growth, which excludes the effect of foreign-currency translation, was 7% and built on very strong growth of 5% in the second quarter of last year.
     Kellogg North America posted internal net sales growth of 8%, as a result of growth in each of the constituent businesses. North America Retail Cereal internal net sales increased by 10% as a result of successful brand-building campaigns and new product introductions across the business. North America Retail Snacks also posted internal sales growth of 8% as a result of growth in the toaster pastries, crackers, and wholesome snacks businesses. The cookies business posted a low single-digit decrease in net sales as a result of difficult comparisons resulting from the shipment of a significant number of new products in the second quarter of last year. The North America Frozen and Specialty Channels businesses collectively posted internal sales growth of 5%, driven by high single-digit sales growth in the Eggo brand and the Food-Away-From-Home businesses.
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     Kellogg International reported net sales growth of 7% in the second quarter, or 3% excluding the favorable effect of currency translation. Internal sales growth in Latin America was 8%, resulting from strong results in both the cereal and snacks businesses. Europe’s local-currency sales growth was 1%, as growth in the snacks business was partially offset by unchanged cereal sales. The European results were significantly affected by a trade issue, which has been subsequently resolved. Internal net sales in the Asia Pacific region increased by 8%, also driven by gains in both cereal and snacks.
     Quarterly operating profit was $473 million in the quarter, an increase of 8% from the comparable period of last year. The continued negative impact of increased benefit costs and high energy costs was more than offset by the excellent net sales growth, improved product mix, operating leverage, lower commodity costs, and productivity savings. In addition, the Company increased its investment in brand building at a double-digit rate during the quarter; investment in up-front costs related to cost-reduction projects was unchanged from the second quarter of last year. Interest expense increased due to the early retirement of debt during the quarter.
     Year-to-date cash flow, defined as cash from operating activities less capital expenditures, was $474 million, which represents 22% growth from the comparable period last year.
      
      
Kellogg Raises 2005 Outlook
     Kellogg raised its guidance for full-year earnings to a range between $2.30 and $2.33 per share. This guidance includes significantly greater than anticipated investment in brand building and an estimate for up-front costs and write-offs related to capacity rationalizations and cost-reduction initiatives of approximately $0.15 per share.
     Mr. Jenness concluded, “Our performance through the first half of the year has been very strong. It is this performance that allows us the flexibility to increase our guidance while investing aggressively in our businesses around the world. Gross margin and operating leverage provide us the opportunity to effectively market increased levels of innovation and drive growth for the remainder of 2005 and into next year.”
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About Kellogg Company
     With 2004 sales of nearly $10 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, frozen waffles, and meat alternatives. The Company’s brands include Kellogg’s, Keebler, Pop-Tarts, Eggo, Cheez-It, Club, Nutri-Grain, Rice Krispies, All-Bran, Special K, Mini-Wheats, Chips Deluxe, Sandies, Morningstar Farms, Famous Amos, and Kashi. Kellogg products are manufactured in 17 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 forward-looking statements related to business performance, investments, earnings, costs, and write-offs. Actual performance may differ materially from these statements due 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.
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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(millions, except per share data)
                                 
 
                    Year-to-date     Year-to-date  
    Quarter ended     Quarter ended     period ended     period ended  
(Results are unaudited)   July 2,     June 26,     July 2,     June 26,  
    2005     2004     2005     2004  
 
 
                                
Net sales
   $ 2,587.2     $ 2,387.3     $ 5,159.5     $ 4,777.8  
 
                                
Cost of goods sold
     1,388.6       1,307.1       2,825.0       2,662.6  
Selling and administrative expense
     726.1       641.8       1,394.2       1,256.6  
 
                    
 
                                
Operating profit
     472.5       438.4       940.3       858.6  
 
                                
Interest expense
     89.2       76.1       165.1       154.3  
Other income (expense), net
     3.9       (5.0 )     (13.5 )     (6.3 )
 
                    
 
                                
Earnings before income taxes
     387.2       357.3       761.7       698.0  
Income taxes
     128.2       119.9       248.0       240.8  
 
                    
 
                                
Net earnings
   $ 259.0     $ 237.4     $ 513.7     $ 457.2  
 
                    
 
                                
Net earnings per share:
                                
Basic
   $ .63     $ .58     $ 1.25     $ 1.11  
Diluted
   $ .62     $ .57     $ 1.23     $ 1.10  
 
                                
Dividends per share
   $ .2525     $ .2525     $ .5050     $ .5050  
 
                    
 
                                
Average shares outstanding:
                                
Basic
     412.0       411.8       412.5       411.3  
 
                    
Diluted
     415.8       416.5       416.5       415.5  
 
                    
 
                                
Actual shares outstanding at period end
                     413.0       412.8  
 
                          
     
 
Other income (expense), net includes non-operating items such as interest income, foreign exchange gains and losses, charitable donations, and gains on asset sales.
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Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
(millions)
                                 
 
                    Year-to-date     Year-to-date  
    Quarter ended     Quarter ended     period ended     period ended  
    July 2,     June 26,     July 2,     June 26,  
(Results are unaudited)   2005     2004     2005     2004  
 
 
                                
Net sales
                                
North America
   $ 1,706.6     $ 1,567.5     $ 3,422.4     $ 3,165.8  
Europe
     535.9       516.0       1,063.8       1,007.2  
Latin America
     208.5       185.9       396.3       354.2  
Asia Pacific (a)
     136.2       117.9       277.0       250.6  
 
                    
Consolidated
   $ 2,587.2     $ 2,387.3     $ 5,159.5     $ 4,777.8  
 
                    
 
                                
 
 
                                
Segment operating profit
                                
North America
   $ 329.3     $ 300.3     $ 653.3     $ 589.0  
Europe
     95.9       96.0       189.2       178.4  
Latin America
     52.4       50.1       100.5       96.3  
Asia Pacific (a)
     22.5       17.0       51.2       42.8  
Corporate
     (27.6 )     (25.0 )     (53.9 )     (47.9 )
 
                    
Consolidated
   $ 472.5     $ 438.4     $ 940.3     $ 858.6  
 
                    
     
 
(a)   Includes Australia and Asia.
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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
                 
 
    Year-to-date     Year-to-date  
    period ended     period ended  
    July 2,     June 26,  
(unaudited)   2005     2004  
 
 
                
Operating activities
                
Net earnings
   $ 513.7     $ 457.2  
Adjustments to reconcile net earnings to operating cash flows:
                
Depreciation and amortization
     194.8       205.5  
Deferred income taxes
     (73.7 )     (8.9 )
Other
     123.9       51.2  
Postretirement benefit plan contributions
     (69.8 )     (126.8 )
Changes in operating assets and liabilities
     (101.5 )     (88.7 )
 
 
                
Net cash provided by operating activities
     587.4       489.5  
 
 
                
Investing activities
                
Additions to properties
     (113.0 )     (101.1 )
Acquisitions of businesses
     (30.0 )     —  
Other
     1.3       0.8  
 
 
                
Net cash used in investing activities
     (141.7 )     (100.3 )
 
 
                
Financing activities
                
Net issuances (reductions) of notes payable
     469.4       356.6  
Reductions of long-term debt
     (725.9 )     (502.5 )
Net issuances of common stock
     184.2       202.2  
Common stock repurchases
     (263.1 )     (162.8 )
Cash dividends
     (208.0 )     (208.2 )
Other
     3.1       (1.7 )
 
 
                
Net cash used in financing activities
     (540.3 )     (316.4 )
 
 
                
Effect of exchange rate changes on cash
     (19.6 )     (2.7 )
 
 
                
Increase (decrease) in cash and cash equivalents
     (114.2 )     70.1  
Cash and cash equivalents at beginning of period
     417.4       141.2  
 
 
                
Cash and cash equivalents at end of period
   $ 303.2     $ 211.3  
 
 
                
 
Supplemental Financial Data:
                
 
                
Cash Flow (operating cash flow less property additions)*
   $ 474.4     $ 388.4  
 
* 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 2,     January 1,  
    2005     2005  
    (unaudited)     *  
 
 
                
Current assets
                
Cash and cash equivalents
   $ 303.2     $ 417.4  
Accounts receivable, net
     938.8       776.4  
Inventories:
                
Raw materials and supplies
     193.2       188.0  
Finished goods and materials in process
     487.1       493.0  
Other current assets
     308.5       247.0  
 
 
                
Total current assets
     2,230.8       2,121.8  
Property, net of accumulated depreciation of $3,785.6 and $3,778.8
     2,604.8       2,715.1  
Goodwill
     3,445.5       3,445.5  
Other intangibles, net of accumulated amortization of $46.9 and $46.1
     1,440.9       1,442.2  
Other assets
     812.8       837.3  
 
 
                
Total assets
   $ 10,534.8     $ 10,561.9  
 
Current liabilities
                
Current maturities of long-term debt
   $ 277.5     $ 278.6  
Notes payable
     1,220.0       750.6  
Accounts payable
     753.5       726.3  
Accrued advertising and promotion
     365.3       322.0  
Other current liabilities
     736.1       768.5  
 
Total current liabilities
     3,352.4       2,846.0  
 
                
Long-term debt
     3,169.8       3,892.6  
Deferred income taxes
     925.6       959.1  
Pension benefits
     201.1       181.1  
Nonpension postretirement benefits
     263.9       269.7  
Other liabilities
     144.6       156.2  
 
                
Shareholders’ equity
                
Common stock, $.25 par value
     104.5       103.8  
Capital in excess of par value
     73.7       —  
Retained earnings
     3,026.7       2,701.3  
Treasury stock, at cost
     (242.4 )     (108.0 )
Accumulated other comprehensive income (loss)
     (485.1 )     (439.9 )
 
 
                
Total shareholders’ equity
     2,477.4       2,257.2  
 
 
                
Total liabilities and shareholders’ equity
   $ 10,534.8     $ 10,561.9  
 
* Condensed from audited financial statements.
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