EX-99.1 2 k26232exv99w1.htm FINANCIAL RESULTS FOR THE PERIOD ENDED MARCH 29, 2008 exv99w1
 

Exhibit 99.1
             
(KELLOGG'S LOGO)  
Kellogg Company News
    
 
 
  For release:   April 30, 2008    
 
  Analyst Contact:   Joel Wittenberg   (269) 961-9089
 
  Media Contact:   Kris Charles   (269) 961-3799
Kellogg Announces Strong Sales and Operating Profit Growth
And 10% Dividend Increase
     BATTLE CREEK, Mich. - Kellogg Company (NYSE: K) today reported strong first quarter 2008 sales growth of 10% and operating profit growth of 9%. These results were driven by innovation, recent price increases and effective brand building and were achieved after absorbing significant cost inflation. In addition, the Company’s Board of Directors announced plans to increase the quarterly dividend by 10% beginning in the third quarter.
     Reported net earnings for the quarter were $315 million, a 2% decrease from last year’s $321 million. Earnings were $0.81 per diluted share versus last year’s $0.80. First quarter 2007 results included a discrete tax benefit resulting in an effective tax rate of 24% versus this quarter’s 30% rate. In addition, the Company has completed this year’s $650 million share repurchase program.
     “Our continued focus on executing our business model paid off during the first quarter,” said David Mackay, Kellogg’s chief executive officer. “We posted strong results, despite the impact of higher commodity inflation as well as increased advertising and up-front investments. As a sign of our confidence, the Board of Directors announced its plans for a 10% increase in the quarterly dividend starting in the third quarter.”
     Reported net sales in the first quarter of 2008 were $3.3 billion, an increase of 10% from the first quarter of 2007. Internal net sales growth, which excludes the effect of foreign-currency translation and acquisitions, was 5%.
     Kellogg North America posted reported net sales growth of 7%; internal net sales growth was 5%. Retail Cereal posted internal sales growth of 4%. The Retail Snacks business also posted internal sales growth of 4%. The North America Frozen and Specialty Channels businesses posted internal net sales growth of 10%.
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     Kellogg International reported first quarter net sales growth of 16%, or 6% excluding the favorable effect of currency translation and acquisitions. Internal net sales in Latin America increased by 7% and Europe posted internal sales growth of 5%. Both Latin America and Europe achieved solid performance in both the cereal and snacks categories. The Asia Pacific region posted internal net sales growth of 5%.
     Reported operating profit was $545 million in the first quarter of 2008, an increase of 9% from the first quarter of last year. Internal operating profit growth was 6% in the first quarter. The Company achieved these results despite a significant increase in cost inflation, higher up-front costs and a mid single-digit increase in reported advertising investment. Total up-front costs incurred for cost-reduction initiatives were approximately 4 cents per share versus last year’s 1 cent per share. Kellogg continues to expect that up-front costs related to cost-reduction initiatives for the full year will be approximately $0.14 of earnings per share.
     Cash flow, defined as cash from operating activities less capital expenditures, was $181 million in the first quarter versus last year’s $289 million. For the full year, Kellogg still anticipates cash flow of between $1,000 million and $1,075 million.
Kellogg Expresses Confidence and Affirms Guidance for the Full Year
     Kellogg expects full-year earnings to be in a range of $2.92-$2.97 per share. The Company also expects that internal sales and operating profit will increase at a mid single-digit rate for the full year. Expectations for 2008 now include incremental commodity, energy, fuel and benefits expense of approximately 80 cents per share versus the previous expectation of more than 65 cents per share.
     Mr. Mackay concluded, “Although we now expect commodity inflation to be even higher than previously anticipated, we remain committed to achieving another strong year in 2008. Our business momentum, recent price increases and focus on productivity give us confidence we will meet our goals.”
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About Kellogg Company
With 2007 sales of nearly $12 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®, Morningstar Farms®, Famous Amos®, Special K®, Stretch Island®, All-Bran®, Frosted Mini-Wheats®, Club® and Kashi®. Kellogg products are manufactured in 18 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, earnings, costs, cash flow, brand building, and cost-reduction initiatives. Actual performance may differ materially from these statements due to factors related 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. 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 EARNINGS
(millions, except per share data)
                 
    Quarter ended
    March 29,   March 31,
(Results are unaudited)   2008   2007
 
Net sales
   $ 3,258     $ 2,963  
 
                
Cost of goods sold
     1,894       1,699  
Selling, general and administrative expense
     819       765  
 
 
Operating profit
     545       499  
 
                
Interest expense
     82       78  
Other income (expense), net
     (11 )     2  
 
 
Earnings before income taxes
     452       423  
Income taxes
     137       102  
 
 
Net earnings
   $ 315     $ 321  
 
 
                
Net earnings per share:
                
Basic
   $ .82     $ .81  
Diluted
   $ .81     $ .80  
 
                
Dividends per share
   $ .3100     $ .2910  
 
 
                
Average shares outstanding:
                
Basic
     386       398  
 
Diluted
     389       401  
 
 
                
Actual shares outstanding at period end
     379       397  
 
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Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
                 
    Quarter ended
(millions)   March 29,   March 31,
(Results are unaudited)   2008   2007
 
Net sales
                
North America
   $ 2,148     $ 2,002  
Europe
     677       574  
Latin America
     253       229  
Asia Pacific (a)
     180       158  
 
Consolidated
   $ 3,258     $ 2,963  
 
 
                
Operating profit
                
North America
   $ 403     $ 361  
Europe
     112       108  
Latin America
     45       47  
Asia Pacific (a)
     31       27  
Corporate
     (46 )     (44 )
 
Consolidated
   $ 545     $ 499  
 
 
(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
    March 29,   March 31,
(unaudited)   2008   2007
 
Operating activities
                
Net earnings
   $ 315     $ 321  
Adjustments to reconcile net earnings to operating cash flows:
                
Depreciation and amortization
     94       87  
Deferred income taxes
     (11 )     (33 )
Other (a)
     70       28  
Postretirement benefit plan contributions
     (41 )     (30 )
Changes in operating assets and liabilities
     (179 )     (18 )
 
 
                
Net cash provided by operating activities
     248       355  
 
 
                
Investing activities
                
Additions to properties
     (67 )     (66 )
Acquisitions of business, net of cash acquired
     (105 )     —  
 
 
                
Net cash used in investing activities
     (172 )     (66 )
 
 
                
Financing activities
                
Net issuances (reductions) of notes payable
     (117 )     418  
Issuances of long-term debt
     746       —  
Reductions of long-term debt
     (1 )     (728 )
Issuances of common stock
     40       62  
Common stock repurchases
     (642 )     (114 )
Cash dividends
     (119 )     (116 )
Other
     8       4  
 
 
                
Net cash used in financing activities
     (85 )     (474 )
 
 
                
Effect of exchange rate changes on cash
     17       10  
 
 
                
Increase (decrease) in cash and cash equivalents
     8       (175 )
Cash and cash equivalents at beginning of period
     524       411  
 
 
                
Cash and cash equivalents at end of period
   $ 532     $ 236  
 
 
                
Supplemental Financial Data:
                
Cash Flow (operating cash flow less property additions) (b)
   $ 181     $ 289  
 
 
(a)   Consists principally of non-cash expense accruals for employee compensation and benefit obligations.
 
(b)   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)
                 
    March 29,   December 29,
    2008   2007
    (unaudited)   *
 
Current assets
                
Cash and cash equivalents
   $ 532     $ 524  
Accounts receivable, net
     1,360       1,026  
Inventories:
                
Raw materials and supplies
     249       234  
Finished goods and materials in process
     644       690  
Deferred income taxes
     111       103  
Other prepaid assets
     174       140  
 
 
                
Total current assets
     3,070       2,717  
Property, net of accumulated depreciation of $4,446 and $4,313
     3,052       2,990  
Goodwill
     3,598       3,515  
Other intangibles, net of accumulated amortization of $42 and $41
     1,449       1,450  
Pension
     525       481  
Other assets
     238       244  
 
 
                
Total assets
   $ 11,932     $ 11,397  
 
Current liabilities
                
Current maturities of long-term debt
   $ 466     $ 466  
Notes payable
     1,374       1,489  
Accounts payable
     1,148       1,081  
Accrued advertising and promotion
     436       378  
Accrued income taxes
     82       —  
Accrued salaries and wages
     186       316  
Other current liabilities
     399       314  
 
 
                
Total current liabilities
     4,091       4,044  
 
                
Long-term debt
     4,018       3,270  
Deferred income taxes
     666       647  
Other liabilities
     923       910  
 
                
Shareholders’ equity
                
Common stock, $.25 par value
     105       105  
Capital in excess of par value
     388       388  
Retained earnings
     4,399       4,217  
Treasury stock, at cost
     (1,933 )     (1,357 )
Accumulated other comprehensive income (loss)
     (725 )     (827 )
 
 
                
Total shareholders’ equity
     2,234       2,526  
 
 
                
Total liabilities and shareholders’ equity
   $ 11,932     $ 11,397  
 
 
*   From audited financial statements.
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