EX-99.1 2 dex991.htm PRESS RELEASE DATED OCTOBER 29, 2009 Press Release dated October 29, 2009

Exhibit 99.1

LOGO    Kellogg Company News
     

For release:

Analyst Contact:

Media Contact:

  

October 29, 2009

Kim Stumm

Kris Charles

  

 

(269) 961-3565

(269) 961-3799

 

 

KELLOGG DELIVERS STRONG Q3 2009; RAISES FULL-YEAR 2009 GUIDANCE,

SETS TARGETS FOR 2010

BATTLE CREEK, Mich. – Kellogg Company (NYSE: K) today reported third quarter 2009 financial results that included strong internal net sales and internal operating profit growth. Third quarter net earnings were $361 million, a 6% increase from last year’s third quarter net earnings of $342 million. Earnings per diluted share were $0.94 for the quarter, a year-over-year increase of 6% on a reported basis and 12% higher on a currency-neutral basis despite higher up-front costs.

“The current economic environment has placed significant pressure on our consumers,” said David Mackay, Kellogg Company chief executive officer. “However, the environment also provided us with both the incentive and the opportunity to build an even stronger company for the future. We are aggressively pursuing productivity initiatives, as well as taking advantage of media deflation and efficiency programs to invest even more back into advertising to further drive the long-term health of our brands.”

Third quarter reported net sales were $3.3 billion, representing a 0.3% decrease versus the third 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 net sales growth of 1% on a reported basis, and 2% on an internal basis, building on strong year-ago internal net sales growth of 9%. Internal net sales growth for Kellogg North America consisted of 2% internal net sales growth delivery from North America Retail Cereal, 3% growth from North America Snacks, and a decline of 3% from North America Frozen and Specialty Channels.

Kellogg International posted a third quarter net sales decline of 4% on a reported basis, however net sales grew 6% on an internal basis, which excludes the effects of currency translation and acquisitions. Internal net sales for Kellogg International consisted of Latin America’s internal net sales growth of 9%, Asia Pacific’s growth of 4%, and Europe’s growth of 5% versus the third quarter of last year. Of particular note is Europe’s strong return to internal net sales growth in the back half of the year, in line with guidance from the Company’s second quarter conference call.

 

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Operating profit for the third quarter of $567 million was a solid 6% increase on a reported basis, and a strong 11% increase on an internal basis. Total up-front costs for cost-reduction initiatives totaled approximately $0.06 per share, out-pacing 2008’s third quarter up-front costs of $0.01 per share. Gross margin for third quarter 2009 of 43.9% represents a 120 basis point increase over last year’s third quarter on a reported basis.

The benefit to third quarter earnings per share from favorability below the operating profit line in items such as interest expense and a lower effective tax rate was more than offset by unfavorability in other income and expense.

Kellogg Company continued to deliver strong cash flow, generating $978 million year-to-date, including an unfavorable impact from foreign exchange. The Company’s year-to-date cash flow, defined as cash from operating activities less capital expenditures, surpassed the $893 million of cash flow generated during the comparable period in 2008. For the full-year 2009, Kellogg raised guidance for cash flow, as defined, to approximately $1.2 billion. “Manage for Cash continues to be a key operating principle for Kellogg. Having re-doubled our efforts in this difficult environment, we will deliver a record cash flow performance in 2009 despite the adverse impact of foreign exchange,” said Mackay.

Kellogg Raises Full-Year 2009 Guidance and Provides Guidance for 2010

Kellogg re-affirmed its internal sales growth guidance of 3 – 4% for full-year 2009, which is above the Company’s long-term targets. The Company now anticipates increased gross margin expansion for full-year 2009 of approximately 100 basis points, reflecting strong productivity gains and slightly lower than expected inflation. Kellogg also raised guidance for 2009 internal operating profit growth to a range of 8 – 10%, above the Company’s long-term targets and despite significant re-investment in advertising and up-front costs. In addition, the Company raised its currency-neutral earnings per share guidance for 2009 from a range of 8 – 10% to a range of 10 – 12%, reflecting strong profit growth slightly offset by higher interest expense.

Supported by the strong performance in 2009, continuing momentum and significant re-investment, the Company is well-positioned to deliver another year of strong growth in 2010. For 2010, Kellogg anticipates internal net sales growth of 2 – 3%, in line with the Company’s long-term targets and reflecting less pricing year-on-year. Up-front costs for full-year 2010 will decrease from 2009’s 26 cents per share to a range of 14 – 16 cents per share and this decrease will positively

 

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impact operating profit and net earnings. Accordingly, the Company anticipates internal operating profit growth in the high single-digit range, above its long-term annual targets. Reflecting this higher level of anticipated profit growth for 2010, the Company further guided to a range of 10 – 12% earnings per share growth on a currency-neutral basis, anticipating a second consecutive year of growth above its long-term annual targets.

CEO Mackay concluded, “Although most aspects of our guidance for both 2009 and 2010 are above our long-term targets, we are pragmatic about the challenging environment we face. Hence, we are focused on continued reinvestment into our brands, as well as optimizing our business model and global organization – while achieving cost savings and future visibility. We therefore remain confident in our ability to continue delivering sustainable, dependable performance in the future.”

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on October 29, 2009 at 9:30 am Eastern Daylight 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 888-465-4043 (US) or 201-604-5146 (International). Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is also available at http://investor.kelloggs.com.

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.

 

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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 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  
(Results are unaudited)    October 3,
2009
    September 27,
2008
    October 3,
2009
    September 27,
2008
 

Net sales

   $ 3,277      $ 3,288      $ 9,675      $ 9,889   

Cost of goods sold

     1,837        1,885        5,529        5,678   

Selling, general and administrative expense

     873        870        2,497        2,603   

Operating profit

     567        533        1,649        1,608   

Interest expense

     65        71        199        230   

Other income (expense), net

     (10     12        (1     (7

Income before income taxes

     492        474        1,449        1,371   

Income taxes

     132        133        416        403   

Earnings (loss) from joint ventures

     —          —          (1     —     

Net income

     360        341      $ 1,032      $ 968   

Net income (loss) attributable to noncontrolling interests (a)

     (1     (1     (4     (1

Net income attributable to Kellogg Company (a)

   $ 361      $ 342      $ 1,036      $ 969   

Per share amounts:

        

Basic

   $ .94      $ .90      $ 2.71      $ 2.54   

Diluted

   $ .94      $ .89      $ 2.70      $ 2.51   

Dividends per share

   $ .3750      $ .3400      $ 1.0550      $ .9600   

Average shares outstanding:

        

Basic

     382        380        382        382   

Diluted

     384        384        383        385   

Actual shares outstanding at period end

                     379        381   
                                  

 

(a) Accounting guidance for “Noncontrolling interests in Consolidated Financial Statements” requires retrospective presentation of amounts related to partially-owned subsidiaries.


Kellogg Company and Subsidiaries

SELECTED OPERATING SEGMENT DATA

 

                                  
     Quarter ended     Year-to-date period ended  

(millions)

(Results are unaudited)

   October 3,
2009
    September 27,
2008
    October 3,
2009
    September 27,
2008
 

Net sales

        

North America

   $ 2,187      $ 2,156      $ 6,574      $ 6,431   

Europe

     631        666        1,805        2,089   

Latin America

     262        277        750        813   

Asia Pacific (a)

     197        189        546        556   

Consolidated

   $ 3,277      $ 3,288      $ 9,675      $ 9,889   

Segment operating profit

        

North America

   $ 415      $ 380      $ 1,244      $ 1,163   

Europe

     105        113        304        347   

Latin America

     51        61        157        166   

Asia Pacific (a)

     28        26        74        79   

Corporate

     (32     (47     (130     (147

Consolidated

   $ 567      $ 533      $ 1,649      $ 1,608   
                                  
(a) Includes Australia, Asia and South Africa.


Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)

 

 

     Year-to-date period ended  
     October 3,     September 27,  
(unaudited)    2009     2008  

Operating activities

    

Net income

   $ 1,032      $ 968   

Adjustments to reconcile net income to operating cash flows:

    

Depreciation and amortization

     282        274   

Deferred income taxes

     (9     (12

Other

     (18     123   

Postretirement benefit plan contributions

     (93     (60

Changes in operating assets and liabilities

     36        (105

Net cash provided by operating activities

     1,230        1,188   

Investing activities

    

Additions to properties

     (252     (295

Acquisitions of businesses, net of cash acquired

     —          (212

Property disposals

     1        11   

Net cash used in investing activities

     (251     (496

Financing activities

    

Net issuances (reductions) of notes payable

     (915     48   

Issuances of long-term debt

     745        756   

Reductions of long-term debt

     —          (466

Issuances of common stock

     34        155   

Common stock repurchases

     (187     (650

Cash dividends

     (403     (365

Other

     2        14   

Net cash used in financing activities

     (724     (508

Effect of exchange rate changes on cash

     17        (24

Increase in cash and cash equivalents

     272        160   

Cash and cash equivalents at beginning of period

     255        524   

Cash and cash equivalents at end of period

   $ 527      $ 684   
    
                  

Supplemental Financial Data:

    

Cash Flow (operating cash flow less property additions) (a)

   $ 978      $ 893   

 

(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 Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)

 

     

October 3,
2009

(unaudited)

   

January 3,
2009

*

 

Current assets

    

Cash and cash equivalents

   $ 527      $ 255   

Accounts receivable, net

     1,254        1,100   

Inventories:

    

Raw materials and supplies

     232        203   

Finished goods and materials in process

     631        694   

Deferred income taxes

     128        112   

Other prepaid assets

     126        157   

Total current assets

     2,898        2,521   

Property, net of accumulated depreciation of $4,498 and $4,171

     3,000        2,933   

Goodwill

     3,643        3,637   

Other intangibles, net of accumulated amortization of $43 and $42

     1,460        1,461   

Pension

     172        96   

Other assets

     347        298   

Total assets

   $ 11,520      $ 10,946   

Current liabilities

    

Current maturities of long-term debt

   $ 1      $ 1   

Notes payable

     475        1,387   

Accounts payable

     1,082        1,135   

Accrued advertising and promotion

     479        357   

Accrued income taxes

     21        51   

Accrued salaries and wages

     289        280   

Other current liabilities

     386        341   

Total current liabilities

     2,733        3,552   

Long-term debt

     4,823        4,068   

Deferred income taxes

     338        300   

Pension liability

     603        631   

Other liabilities

     993        940   

Commitments and contingencies

    

Equity

    

Common stock, $.25 par value

     105        105   

Capital in excess of par value

     454        438   

Retained earnings

     5,461        4,836   

Treasury stock, at cost

     (1,927     (1,790

Accumulated other comprehensive income (loss)

     (2,066     (2,141

Total Kellogg Company equity

     2,027        1,448   

Noncontrolling interests (a)

     3        7   

Total equity

     2,030        1,455   

Total liabilities and equity

   $ 11,520      $ 10,946   

 

* Condensed from audited financial statements.
(a) Accounting guidance for “Noncontrolling interests in Consolidated Financial Statements” requires retrospective presentation of amounts related to partially-owned subsidiaries.


Kellogg Company and Subsidiaries

Analysis of net sales and operating profit performance

Third quarter of 2009 versus 2008

 

(dollars in millions)    North
America
    Europe     Latin
America
    Asia Pacific
(a)
    Corporate     Consoli-
dated
 

2009 net sales

   $ 2,187      $ 631      $ 262      $ 197      $  —        $ 3,277   

2008 net sales

   $ 2,156      $ 666      $ 277      $ 189      $ —        $ 3,288   

% change - 2009 vs. 2008:

            

Volume (tonnage) (b)

     -.8     4.2     6.4     -1.5     —          .7

Pricing/mix

     2.5     .5     2.9     5.5     —          2.4

Subtotal - internal business

     1.7     4.7     9.3     4.0     —          3.1

Acquisitions (c)

     .1     —          —          1.8     —          .1

Foreign currency impact

     -.3     -10.0     -14.7     -1.6     —          -3.5

Total change

     1.5     -5.3     -5.4     4.2     —          -.3
            
            
(dollars in millions)    North
America
    Europe     Latin
America
    Asia Pacific
(a)
    Corporate    

Consoli-

dated

 

2009 operating profit

   $ 415      $ 105      $ 51      $ 28      $ (32   $ 567   

2008 operating profit

   $ 380      $ 113      $ 61      $ 26      $ (47   $ 533   

% change - 2009 vs. 2008:

            

Internal business

     9.5     7.0     -3.3     8.6     34.4     11.3

Acquisitions (c)

     —          —          —          -3.5     —          -.1

Foreign currency impact

     -.3     -14.5     -13.9     -.1     —          -4.9

Total change

     9.2     -7.5     -17.2     5.0     34.4     6.3

 

(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 October 3, 2009 from the acquisitions of Specialty Cereal and certain assets and liabilities of IndyBake.


Kellogg Company and Subsidiaries

Analysis of net sales and operating profit performance

Year-to-date 2009 versus 2008

(dollars in millions)    North
America
    Europe     Latin
America
    Asia Pacific
(a)
    Corporate     Consoli-
dated
 

2009 net sales

   $ 6,574      $ 1,805      $ 750      $ 546      $ —        $ 9,675   

2008 net sales

   $ 6,431      $ 2,089      $ 813      $ 556      $ —        $ 9,889   

% change - 2009 vs. 2008:

            

Volume (tonnage) (b)

     -.8     -1.9     3.4     2.0     —          -.5

Pricing/mix

     3.8     3.3     5.2     3.8     —          3.8

Subtotal - internal business

     3.0     1.4     8.6     5.8     —          3.3

Acquisitions (c)

     .1     .4     —          4.8     —          .4

Foreign currency impact

     -.9     -15.4     -16.3     -12.4     —          -5.9

Total change

     2.2     -13.6     -7.7     -1.8     —          -2.2
            
                                                  
(dollars in millions)    North
America
    Europe     Latin
America
    Asia Pacific
(a)
    Corporate     Consoli-
dated
 

2009 operating profit

   $ 1,244      $ 304      $ 157      $ 74      $ (130   $ 1,649   

2008 operating profit

   $ 1,163      $ 347      $ 166      $ 79      $ (147   $ 1,608   

% change - 2009 vs. 2008:

            

Internal business

     8.2     6.4     10.7     19.1     12.1     10.4

Acquisitions (c)

     —          —          —          -9.8     —          -.5

Foreign currency impact

     -1.2     -18.9     -16.5     -16.0     —          -7.4

Total change

     7.0     -12.5     -5.8     -6.7     12.1     2.5

 

(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 October 3, 2009 from the acquisitions of United Bakers, Navigable Foods, Specialty Cereal and certain assets and liabilities of IndyBake.


Kellogg Company and Subsidiaries

Up-Front Costs*

$ millions

 

     Quarter ended October 3, 2009     Year-to-date period ended October 3, 2009  
     Cost of goods
sold
    Selling, general and
administrative
expense
    Total     Cost of goods
sold
    Selling, general and
administrative
expense
    Total  

2009

                                    

North America

   $  12      $    1      $  13      $  46      $  12      $  58   

Europe

   8      5      13      18      5      23   

Latin America

   6      —        6      8      —        8   

Asia Pacific

   2      —        2      3      —        3   

Corporate

   —        —        —        —        —        —     

Total

   $  28      $    6      $  34      $  75      $  17      $  92   
            
     Quarter ended September 27, 2008     Year-to-date period ended September 27, 2008  
     Cost of goods
sold
    Selling, general and
administrative
expense
    Total     Cost of goods
sold
    Selling, general and
administrative
expense
    Total  

2008

                                    

North America

   $  —        $  —        $  —        $  —        $    2      $    2   

Europe

   5      —        5      18      —        18   

Latin America

   —        —        —        11      —        11   

Asia Pacific

   —        —        —        —        —        —     

Corporate

   —        —        —        —        17      17   

Total

   $      5      $  —        $      5      $    29      $  19      $  48   
                
                                      

2009 Variance - better(worse) than 2008

  

           

North America

   $  (12   $    (1   $  (13   $  (46   $  (10   $  (56

Europe

   (3   (5   (8   —        (5   (5

Latin America

   (6   —        (6   3      —        3   

Asia Pacific

   (2   —        (2   (3   —        (3

Corporate

   —        —        —        —        17      17   

Total

   $  (23   $    (6   $  (29   $  (46   $     2      $  (44

 

* Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation