Kellogg Delivers Strong Q2 2009; Raises Full-Year Guidance

790

BATTLE CREEK, Mich., July 30, 2009 (GLOBE NEWSWIRE) – 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.

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.

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(r), Keebler(r), Pop-Tarts(r), Eggo(r), Cheez-It(r), Nutri-Grain(r), Rice Krispies(r), BearNaked(r), Morningstar Farms(r), Famous Amos(r), Special K(r), All-Bran(r), Frosted Mini-Wheats(r), Club(r) and Kashi(r). 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.

The Kellogg Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3194

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.

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
———————————————————————

                                                      Year-to-date
                                Quarter ended         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.

Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA

———————————————————————

                                                      Year-to-date
                             Quarter ended            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.

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.

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.

Kellogg Company and Subsidiaries
Analysis of net sales and operating profit performance

Second quarter of 2009 versus 2008
———————————————————————
               North             Latin      Asia     Cor-    Consoli-
(dollars in   America   Europe  America   Pacific   porate    dated
 millions)                                  (a)
———————————————————————
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%
  Acqui-
   sitions(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     Cor-    Consoli-
(dollars in   America   Europe  America   Pacific   porate    dated
 millions)                                  (a)
———————————————————————
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%
  Acqui-
   sitions (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.

Kellogg Company and Subsidiaries
 Analysis of net sales and operating profit performance

Year-to-date 2009 versus 2008
——————————————————————–
                  North             Latin   Asia     Cor-    Consoli-
(dollars in      America   Europe  America Pacific  porate    dated
 millions)                                   (a)
——————————————————————–
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%

  Acqui-
   sitions(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     Cor-    Consoli-
(dollars in      America   Europe  America Pacific  porate    dated
 millions)                                   (a)
——————————————————————–
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%
  Acqui-
   sitions (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.

Kellogg Company and Subsidiaries
 Up-front Costs (a)
$ millions
                      Quarter ended            Year-to-date period
                      July 4, 2009              ended July 4, 2009
                 ————————-   ————————
                          Selling,                    Selling,
                          general                     general
                           and                         and
                 Cost of  admini-            Cost of  admini-
                  goods   trative             goods   trative
                  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             Year-to-date period
                      June 28, 2008             ended June 28, 2008
                 ————————-   ————————
                          Selling,                    Selling,
                          general                     general
                           and                         and
                 Cost of  admini-            Cost of  admini-
                  goods   trative             goods   trative
                  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                   Year-to-date
                 ————————-   ————————-
                          Selling,                    Selling,
                          general                     general
                           and                         and
                 Cost of  admini-            Cost of  admini-
                  goods   trative             goods   trative
                  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.

CONTACT: Kellogg Company
       

Analyst Contacts:
Joel Wittenberg (269) 961-9089
Kim Stumm (269) 961-3565

Media Contact:
Kris Charles (269) 961-3799

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