EX-99.01 2 k33948exv99w01.htm FINANCIAL RESULTS exv99w01
Exhibit 99.01
     
(KELLOGGS LOGO)
  Kellogg Company News
             
 
  For release:   July 31, 2008    
 
  Analyst Contact:   Joel Wittenberg   (269) 961-9089
 
  Media Contact:   Kris Charles   (269) 961-3799
Kellogg Announces 9% Q2 Earnings Increase, Raises Guidance,
Approves $500 million Share Repurchase
     BATTLE CREEK, Mich. – Kellogg Company (NYSE: K) today reported second quarter 2008 earnings per share growth of 9% with an 11% increase in sales. Results were driven by strong execution, innovation and price realization, and were achieved after absorbing significant cost inflation. In addition, Kellogg has raised its 2008 full-year earnings guidance to a range of $2.95 to $3.00 per diluted share, as a result of the Company’s first half performance and its confidence regarding performance for the remainder of the year.
     The Company today also announced that its board of directors has authorized an additional $500 million share repurchase program, to be executed within the next twelve months. The Company’s initial 2008 authorization of $650 million has already been completed. The additional repurchases are expected to commence late this year from Company cash balances. Consequently, the Company does not anticipate the purchases will have a meaningful impact on 2008 earnings per share.
     Reported net earnings for the quarter were $312 million, a 4% increase over last year’s $301 million. Earnings were $0.82 per diluted share versus last year’s $0.75, an increase of 9%. The second quarter performance included the impact of significantly higher commodity inflation and a double-digit increase in advertising spending offset by lower upfront costs and a lower tax rate.
     “Our first half performance provides further evidence of the strength of our business model and strategy,” said David Mackay, Kellogg’s chief executive officer. “Despite significant inflation headwinds, we capitalized on our momentum to further increase our investment in future growth. We increased our earnings guidance and acquired two businesses in emerging markets within the first half of the year, and we continue to utilize our strong cash flow to return profits to our shareholders through dividends and share repurchases.”
     Reported net sales in the second quarter increased 11% to $3.3 billion. Internal net sales growth, which excludes the effect of foreign-currency translation and acquisitions, was 6%.
- more -

 

 

- 2 -
     Kellogg North America posted reported net sales growth of 7%; internal net sales growth was 6%, driven by broad-based growth across the region. Retail Cereal posted internal net sales growth of 5%, the Retail Snacks business posted internal net sales growth of 6% and the North America Frozen and Specialty Channels businesses reported internal net sales growth of 10%.
     Kellogg International reported second quarter net sales growth of 17%, or 6% excluding the favorable effect of currency translation and acquisitions. Internal net sales in Latin America increased by 7% and European internal net sales grew by 5%. The Asia Pacific region posted internal net sales growth of 9%.
     Reported operating profit was $530 million in the second quarter of 2008, an increase of 2% from the second quarter of last year. Internal operating profit growth was also 2% in the second quarter. Total up-front costs incurred for cost-reduction initiatives were approximately 4 cents per share. Kellogg still expects 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 $510 million in the first half versus last year’s $569 million. For the full year, Kellogg still anticipates cash flow of between $1,000 million and $1,075 million.
Kellogg Expresses Increased Confidence and Raises Full-Year Guidance
     Kellogg now expects full-year earnings to be in the range of $2.95 to $3.00 per share. The Company still 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 90 cents per share versus the previous expectation of 80 cents per share.
     CEO Mackay concluded, “While commodities and the economic outlook remain volatile, our business model and strategy give us continued confidence that we will achieve our long-term goals.”
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
- more -

 

 

- 3 -
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 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 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.
- more -

 

 

- 4 -
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(millions, except per share data)
                                 
    Quarter ended   Year-to-date period ended
    June 28,   June 30,   June 28,   June 30,
(Results are unaudited)   2008   2007   2008   2007
 
Net sales
   $ 3,343     $ 3,015     $ 6,601     $ 5,978  
 
                                
Cost of goods sold
     1,899       1,638       3,793       3,337  
Selling, general and administrative expense
     914       859       1,733       1,624  
 
 
                                
Operating profit
     530       518       1,075       1,017  
 
                                
Interest expense
     77       76       159       154  
Other income (expense), net
     (8 )     —       (19 )     2  
 
 
                                
Earnings before income taxes
     445       442       897       865  
Income taxes
     133       141       270       243  
 
 
                                
Net earnings
   $ 312     $ 301     $ 627     $ 622  
 
 
                                
Net earnings per share:
                                
Basic
   $ .82     $ .76     $ 1.64     $ 1.56  
Diluted
   $ .82     $ .75     $ 1.63     $ 1.55  
 
                                
Dividends per share
   $ .3100     $ .2910     $ .6200     $ .5820  
 
 
                                
Average shares outstanding:
                                
Basic
     379       397       382       397  
 
Diluted
     382       401       386       401  
 
 
                                
Actual shares outstanding at period end
                     379       396  
 
- more -

 

 

- 5 -
Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
(millions)
                                 
    Quarter ended   Year-to-date period ended
    June 28,   June 30,   June 28,   June 30,
(Results are unaudited)   2008   2007   2008   2007
 
Net sales
                                
North America
   $ 2,127     $ 1,980     $ 4,275     $ 3,982  
Europe
     746       623       1,423       1,197  
Latin America
     283       253       536       482  
Asia Pacific (a)
     187       159       367       317  
 
Consolidated
   $ 3,343     $ 3,015     $ 6,601     $ 5,978  
 
 
                                
Operating profit
                                
North America
   $ 380     $ 365     $ 783     $ 726  
Europe
     122       127       234       235  
Latin America
     60       55       105       102  
Asia Pacific (a)
     22       20       53       47  
Corporate
     (54 )     (49 )     (100 )     (93 )
 
Consolidated
   $ 530     $ 518     $ 1,075     $ 1,017  
 
(a)   Includes Australia, Asia and South Africa.
- more -

 

 

- 6 -
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
                 
    Year-to-date period ended
    June 28,   June 30,
(unaudited)   2008   2007
 
Operating activities
                
Net earnings
   $ 627     $ 622  
Adjustments to reconcile net earnings to operating cash flows:
                
Depreciation and amortization
     182       185  
Deferred income taxes
     (3 )     (92 )
Other (a)
     71       79  
Postretirement benefit plan contributions
     (48 )     (34 )
Changes in operating assets and liabilities
     (140 )     (10 )
 
 
                
Net cash provided by operating activities
     689       750  
 
 
                
Investing activities
                
Additions to properties
     (179 )     (181 )
Acquisitions of business, net of cash acquired
     (133 )     —  
Investments in joint ventures and other (b)
     10       (4 )
 
 
                
Net cash used in investing activities
     (302 )     (185 )
 
 
                
Financing activities
                
Net issuances of notes payable
     152       699  
Issuances of long-term debt
     756       —  
Reductions of long-term debt
     (465 )     (729 )
Issuances of common stock
     61       100  
Common stock repurchases
     (650 )     (264 )
Cash dividends
     (236 )     (232 )
Other
     9       10  
 
 
                
Net cash used in financing activities
     (373 )     (416 )
 
 
                
Effect of exchange rate changes on cash
     18       14  
 
 
                
Increase in cash and cash equivalents
     32       163  
Cash and cash equivalents at beginning of period
     524       411  
 
 
                
Cash and cash equivalents at end of period
   $ 556     $ 574  
 
 
                
Supplemental Financial Data:
                
Cash Flow (operating cash flow less property additions) (c)
   $ 510     $ 569  
 
(a)   Consists principally of non-cash expense accruals for employee compensation and benefit obligations.
 
(b)   Includes proceeds from disposition of assets.
 
(c)   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.
- more -

 

 

- 7 -
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
                 
    June 28,   December 29,
    2008   2007
    (unaudited)   *
 
Current assets
                
Cash and cash equivalents
   $ 556     $ 524  
Accounts receivable, net
     1,285       1,011  
Inventories:
                
Raw materials and supplies
     248       234  
Finished goods and materials in process
     694       690  
Deferred income taxes
     85       103  
Other prepaid assets
     169       140  
 
 
                
Total current assets
     3,037       2,702  
 
                
Property, net of accumulated depreciation of $4,502 and $4,313
     3,071       2,990  
Goodwill
     3,597       3,515  
Other intangibles, net of accumulated amortization of $42 and $41
     1,449       1,450  
Pension
     518       481  
Other assets
     321       259  
 
 
                
Total assets
   $ 11,993     $ 11,397  
 
Current liabilities
                
Current maturities of long-term debt
   $ 2     $ 466  
Notes payable
     1,643       1,489  
Accounts payable
     1,206       1,081  
Accrued advertising and promotion
     417       378  
Accrued income taxes
     28       —  
Accrued salaries and wages
     222       316  
Other current liabilities
     365       314  
 
 
                
Total current liabilities
     3,883       4,044  
 
                
Long-term debt
     4,008       3,270  
Deferred income taxes
     662       647  
Other liabilities
     936       910  
 
                
Shareholders’ equity
                
Common stock, $.25 par value
     105       105  
Capital in excess of par value
     407       388  
Retained earnings
     4,590       4,217  
Treasury stock, at cost
     (1,915 )     (1,357 )
Accumulated other comprehensive income (loss)
     (683 )     (827 )
 
 
                
Total shareholders’ equity
     2,504       2,526  
 
 
                
Total liabilities and shareholders’ equity
   $ 11,993     $ 11,397  
 
*   From audited financial statements.
###