Kellogg Company Reports Second Quarter 2015 Results, Reaffirms Full-Year Currency-Neutral Comparable Guidance
-- Improvement in total U.S. Cereal category sales and Kellogg's U.S. Cereal share trends in the second quarter.
-- Good sales growth in Asia, Latin America, and some North American businesses.
-- On-track to meet expectations for the full year; building momentum through the year.
-- Kellogg expects to achieve its long-term targets for currency-neutral comparable sales and operating profit growth in 2016.

BATTLE CREEK, Mich., Aug. 4, 2015 /PRNewswire/ -- Kellogg Company (NYSE: K) today announced second-quarter results; earnings per share were in-line with the company's expectations.  The Asian, Latin American, and European Snack businesses posted currency-neutral comparable net sales growth and the North American business benefited from improving trends.    

"We were pleased that results in the second quarter were as we expected.  We've seen good growth in the Asian and Latin American businesses, growth in the European Snacks business, and improving trends in the North American business," said John Bryant, Kellogg Company's chairman and chief executive officer. "After a difficult 2014, we continue to build momentum in 2015 and are on-track to achieve our long-term-growth targets for currency-neutral comparable sales and operating profit in 2016."

 

Financial Summary:



Quarter ended


Year-to-date period ended

(millions, except per share data)



July 4, 2015

June 28,
2014

% Change


July 4, 2015

June 28,
2014

% Change













Reported Net Sales



$      3,498

$         3,685

-5.1%


$      7,054

$         7,427

-5.0%

Comparable Net Sales *



$      3,483

$         3,682

-5.4%


$      7,036

$         7,422

-5.2%

Currency-Neutral Comparable Net Sales *


$      3,685

$         3,682

0.1%


$      7,414

$         7,422

-0.1%













Reported Operating Profit



$         412

$             467

-11.6%


$         796

$         1,081

-26.3%

Comparable Operating Profit *



$         507

$             567

-10.5%


$      1,034

$         1,126

-8.2%

Currency-Neutral Comparable Operating Profit *


$         529

$             567

-6.8%


$      1,077

$         1,126

-4.4%













Reported Net Income (Loss) Attributable to Kellogg Company

$         223

$             295

-24.6%


$         450

$             701

-35.9%

Comparable Net Income (Loss) Attributable to Kellogg Company *

$         326

$             368

-11.6%


$         677

$             735

-8.0%

Currency-Neutral Comparable Net Income (Loss) Attributable to Kellogg Company *

$         344

$             368

-6.5%


$         714

$             735

-2.8%













Reported Diluted Earnings Per Share


$        0.63

$           0.82

-23.2%


$        1.26

$           1.94

-35.1%

Comparable Diluted Earnings Per Share *


$        0.92

$           1.02

-9.8%


$        1.90

$           2.03

-6.4%

Currency-Neutral Comparable Diluted Earnings Per Share *

$        0.97

$           1.02

-4.9%


$        2.01

$           2.03

-1.0%





































*

Non-GAAP financial measures.  See the tables herein for important information regarding these measures and a 


full reconciliation to the most comparable GAAP measure.




 

Second-quarter 2015 reported net sales decreased by 5.1 percent to $3.5 billion, largely as the result of currency translation.  Currency-neutral comparable net sales increased by 0.1 percent in the second quarter; sales increased in the Latin American and Asia Pacific regions and in the Frozen Foods and Canadian businesses in North America.  Second quarter 2015 reported operating profit was $412 million, a decline of 11.6 percent; this decrease was driven primarily by up-front costs associated with Project K, a remeasurement of the Venezuelan business at the SIMADI rate of 198 Venezuelan bolivars per U.S. dollar (see Exhibit 9), and foreign-currency exchange.  Currency-neutral comparable operating profit declined by 6.8 percent due to higher distribution costs, costs associated with the timing of production, and the resetting of incentive compensation.

Reported earnings for the second quarter of 2015 were $223 million, or $0.63 per share, a decrease of 23 percent from the $0.82 per share reported in the second quarter of last year.  This quarter's reported earnings per share included negative impacts from the remeasurement of the Venezuelan business of $0.37 per share, costs associated with the Project K efficiency and effectiveness program of $0.18 per share and $0.01 per share of integration costs related to the acquisition of Pringles and Bisco Misr.  In addition, reported results included a benefit of $0.06 per share from mark-to-market and a benefit of $0.21 per share from the deconsolidation of a variable interest entity (see Exhibit 15).  Excluding all of these items, comparable second-quarter 2015 earnings were $0.92 per share.  This result included a negative impact of $0.05 per share from currency translation; currency-neutral comparable earnings per share were $0.97 per share.

 

Reconciliation of Reported to Currency-Neutral Comparable Earnings Per Share













Second Quarter 2015 ($)










Reported EPS





0.63



Mark-to-Market





0.06



Project K





(0.18)



Integration





(0.01)



Deconsolidation - Variable Interest Entity


0.21



53rd Week





-



Remeasurement of Venezuelan Business


(0.37)











Comparable EPS





0.92



Foreign Exchange





(0.05)



















Currency-Neutral Comparable* EPS





0.97











 

North America

Net sales posted by Kellogg North America were $2.3 billion in the second quarter, a reported decrease of 2.8 percent; currency-neutral comparable net sales decreased by 1.8 percent.  The U.S. Morning Foods segment posted a currency-neutral comparable net sales decline of 2.3 percent, although trends in the cereal business continued to improve.  Currency-neutral comparable net sales in the U.S. Snacks segment decreased by 1.8 percent.  The U.S. Specialty Channels segment posted a 1.2 percent decline in currency-neutral comparable net sales in the quarter.  The North America Other segment, which is composed of the U.S. Frozen Foods, Kashi, and Canadian businesses, posted a 1.3 percent decrease in currency-neutral comparable net sales.  Reported operating profit in North America decreased by 2.5 percent; currency-neutral comparable operating profit declined by 12.7 percent, due to lower sales, higher distribution costs, costs associated with the timing of production, and the resetting of incentive compensation.

International

Reported net sales decreased by 15.3 percent in Europe in the quarter.  Currency-neutral comparable net sales decreased by 2.5 percent; the Pringles business posted good rates of growth.  In Latin America, reported net sales increased by 2.5 percent; currency-neutral comparable net sales increased by 14.5 percent, including good rates of growth across much of the region.  Reported net sales in Asia Pacific decreased by 5.2 percent; currency-neutral comparable net sales increased by 6.8 percent due to strong growth in the Asian businesses.

Interest and Tax

Kellogg's interest expense was $58 million in the second quarter.  The comparable effective tax rate* in the second quarter of 2015 was 26.9 percent, lower than last year due to tax-planning initiatives.

Cash flow

Cash flow,* a non-GAAP measure defined as cash from operating activities less capital expenditures, was $323 million for the first half of the year.  The year-over-year change was due to earnings results, core working capital changes, and increased cash costs associated with Project K.  The company continues to expect that cash flow for the full year will be approximately $1.0 billion.

Kellogg Reaffirms Full-Year Currency-Neutral Comparable 2015 Guidance

The company reaffirmed previous guidance for currency-neutral comparable net sales, operating profit, and earnings per share in 2015; the company also reaffirmed guidance for full-year cash flow.  Currency-neutral comparable net sales are expected to remain approximately unchanged year-over-year.  Kellogg expects full-year 2015 currency-neutral comparable operating profit to decrease at a rate between two and four percent.  Full-year 2015 currency-neutral comparable earnings per share are anticipated to be in a range between two percent lower and approximately unchanged.  The estimates for currency-neutral comparable operating profit and currency-neutral comparable earnings per share include a negative impact of between three and four percentage points from the rebasing of incentive compensation for 2015.  Guidance for both operating profit and earnings per share excludes the impact of mark-to-market adjustments, 2014's 53rd week, integration costs, costs related to Project K, acquisitions, dispositions, foreign-currency translation, remeasurement of the Venezuelan business, and other items that could affect comparability.  Cash flow is expected to be approximately $1.0 billion, which includes the impact of the cash required by Project K.

In addition, Kellogg Company announced that due to continued strong productivity, progress with Project K and zero-based budgeting, and the year-over-year sales momentum seen in 2015, it expects that it will achieve its long-term targets for currency-neutral comparable net sales and operating profit growth in 2016.

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on Tuesday, August 4th, 2015 at 9:30 a.m. Eastern 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 (855) 209-8258 in the U.S., and (412) 542-4104 outside of the U.S.  Members of the media and the public are invited to attend in a listen-only mode.  Information regarding the rebroadcast is available at http://investor.kelloggs.com.

About Kellogg Company

At Kellogg Company (NYSE: K), we are driven to enrich and delight the world through foods and brands that matter. With 2014 sales of approximately $14.6 billion, Kellogg is the world's leading cereal company; second largest producer of cookies and crackers; a leading producer of savory snacks; and a leading North American frozen foods company.  Every day, our well-loved brands nourish families so they can flourish and thrive. These brands include Kellogg's®, Keebler®, Special K®, Pringles®, Kellogg's Frosted Flakes®, Pop-Tarts®, Kellogg's Corn Flakes®, Rice Krispies®, Kashi®, Cheez-It®, Eggo®, Coco Pops®, Mini-Wheats®, and many more. To learn more about our responsible business leadership, foods that delight and how we strive to make a difference in our communities around the world, visit www.kelloggcompany.com.

Use of Non-GAAP Financial Measures

Certain financial measures have been provided on a non-GAAP (Generally Accepted Accounting Principles) basis.  Management believes the use of such non-GAAP measures provides increased transparency and assists investors in understanding the underlying operating performance of the company and its segments and in the analysis of ongoing operating trends.  All non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures in the attachments provided with the release.

Forward-Looking Statements Disclosure

This news release contains, or incorporates by reference, "forward-looking statements" with projections concerning, among other things, the Company's efficiency-and-effectiveness program (Project K), the integration of acquired businesses, the Company's strategy, zero-based budgeting, 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, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, and competitive pressures.  Forward-looking statements include predictions of future results or activities and may contain the words "expects," "believes," "should," "will," "anticipates," "projects," "estimates,"  "implies," "can," 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 ability to implement Project K as planned, whether the expected amount of costs associated with Project K will differ from forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions in the amounts and at the times expected, 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; disruptions or inefficiencies in supply chain; 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 including changes in food safety, advertising and labeling laws and regulations; 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 update them publicly.

[Kellogg Company Financial News]

 

Kellogg Company and Subsidiaries




Exhibit 1

CONSOLIDATED STATEMENT OF INCOME





(millions, except per share data)













Quarter ended

Year-to-date period ended



July 4,

June 28,

July 4,

June 28,

(Results are unaudited)

2015

2014

2015

2014







Net sales

$3,498

$3,685

$7,054

$7,427







Cost of goods sold

2,257

2,274

4,568

4,512

Selling, general and administrative expense

829

944

1,690

1,834







Operating profit

412

467

796

1,081







Interest expense

58

50

112

102

Other income (expense), net

(46)

3

(72)

13







Income before income taxes 

308

420

612

992

Income taxes

85

122

161

287

Earnings (loss) from joint ventures

(1)

(3)

(2)

(4)

Net income

$222

$295

$449

$701

Net income (loss) attributable to noncontrolling interests 

(1)

-

(1)

-

Net income attributable to Kellogg Company 

$223

$295

$450

$701







Per share amounts:






Basic

$.63

$.82

$1.27

$1.95


Diluted

$.63

$.82

$1.26

$1.94







Dividends per share

$.49

$.46

$.98

$.92







Average shares outstanding:






Basic

353

359

354

360


Diluted

355

362

356

362







Actual shares outstanding at period end



353

360







 

 

Kellogg Company and Subsidiaries



Exhibit 2

SELECTED OPERATING SEGMENT DATA













(millions)










Quarter ended


Year-to-date period ended




July 4,

June 28,


July 4,

June 28,

(Results are unaudited)


2015

2014


2015

2014









Net sales








U.S. Morning Foods

$742

$759


$1,518

$1,558


U.S. Snacks


835

851


1,689

1,715


U.S. Specialty


270

276


631

648


North America Other

439

464


872

946


Europe 


650

767


1,257

1,472


Latin America 


328

320


623

598


Asia Pacific


234

248


464

490


Consolidated


$3,498

$3,685


$7,054

$7,427

















Operating profit 








U.S. Morning Foods

$131

$137


$258

$263


U.S. Snacks


160

124


240

210


U.S. Specialty


59

63


137

150


North America Other

37

74


96

157


Europe 


57

50


118

115


Latin America 


(56)

47


(5)

95


Asia Pacific


10

5


22

21


Total Reportable Segments

398

500


866

1,011


Corporate 


14

(33)


(70)

70


Consolidated


$412

$467


$796

$1,081

















 

 

Kellogg Company and Subsidiaries


Exhibit 3

CONSOLIDATED STATEMENT OF CASH FLOWS



(millions)










         Year-to-date period ended



            July 4,

      June 28,

(unaudited)


2015

2014





Operating activities




Net income


$449

$701

Adjustments to reconcile net income to 




operating cash flows:




  Depreciation and amortization


269

235

  Postretirement benefit plan expense (benefit)

(41)

(45)

  Deferred income taxes


(11)

18

  Venezuela remeasurement


152

-

  VIE deconsolidation


(49)

-

  Other 


56

18

Postretirement benefit plan contributions


(17)

(37)

Changes in operating assets and liabilities, net of acquisitions

(267)

(236)





Net cash provided by (used in) operating activities

541

654





Investing activities




Additions to properties


(218)

(226)

Acquisitions, net of cash acquired


(117)

-

Other


42

-





Net cash provided by (used in) investing activities

(293)

(226)





Financing activities




Net issuances (reductions) of notes payable


114

118

Issuances of long-term debt


672

952

Reductions of long-term debt


(606)

(957)

Net issuances of common stock


90

133

Common stock repurchases 


(285)

(329)

Cash dividends


(347)

(331)

Other


5

6





Net cash provided by (used in) financing activities

(357)

(408)





Effect of exchange rate changes on cash and cash equivalents


(40)

(3)





Increase (decrease) in cash and cash equivalents

(149)

17

Cash and cash equivalents at beginning of period

443

273





Cash and cash equivalents at end of period

$294

$290









Supplemental financial data:








Net cash provided by (used in) operating activities

$541

$654

Additions to properties


(218)

(226)

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

$323

$428









(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


Exhibit 4

CONSOLIDATED BALANCE SHEET





(millions, except per share data)













 July 4,

   January 3,




2015

2015




   (unaudited)

       *






Current assets





Cash and cash equivalents



$294

$443

Accounts receivable, net



1,420

1,276

Inventories:





    Raw materials and supplies



318

327

    Finished goods and materials in process



893

952

Deferred income taxes



161

184

Other prepaid assets



240

158






Total current assets



3,326

3,340






Property, net of accumulated depreciation





  of $5,585 and $5,526



3,624

3,769

Goodwill



4,978

4,971

Other intangibles, net of accumulated amortization





  of $43 and $43



2,266

2,295

Pension



279

250

Other assets



489

528






Total assets



$14,962

$15,153






Current liabilities





Current maturities of long-term debt



$754

$607

Notes payable



939

828

Accounts payable



1,591

1,528

Accrued advertising and promotion



470

446

Accrued income taxes



15

39

Accrued salaries and wages



245

320

Other current liabilities



505

596






Total current liabilities



4,519

4,364






Long-term debt



5,800

5,935

Deferred income taxes 



747

726

Pension liability



728

777

Nonpension postretirement benefits



69

82

Other liabilities



425

418






Commitments and contingencies










Equity





Common stock, $.25 par value



105

105

Capital in excess of par value



704

678

Retained earnings



6,789

6,689

Treasury stock, at cost



(3,665)

(3,470)

Accumulated other comprehensive income (loss) 



(1,281)

(1,213)






Total Kellogg Company equity



2,652

2,789






Noncontrolling interests 



22

62






Total equity



2,674

2,851






Total liabilities and equity



$14,962

$15,153

* Condensed from audited financial statements.





 

 

Kellogg Company and Subsidiaries








Exhibit 5

Analysis of net sales and operating profit performance
























Second Quarter of 2015 versus 2014 
























U.S.

U.S.

U.S.

North America

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

Other

America

Europe

America

Pacific

orate

dated

2015 net sales

$742

$835

$270

$439

$2,286

$650

$328

$234

$0

$3,498

2014 net sales

$759

$851

$276

$464

$2,350

$767

$320

$248

$0

$3,685

% change - 2015 vs. 2014:











As Reported

-2.3%

-1.8%

-2.4%

-5.5%

-2.8%

-15.3%

2.5%

-5.2%

0.0%

-5.1%


Project K (b)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.2%

0.0%

0.0%

0.0%


Acquisitions/divestitures (e)

0.0%

0.0%

-1.2%

0.0%

-0.2%

2.0%

0.0%

0.0%

0.0%

0.3%

Comparable growth (g)

-2.3%

-1.8%

-1.2%

-5.5%

-2.6%

-17.3%

2.3%

-5.2%

0.0%

-5.4%


Foreign currency impact

0.0%

0.0%

0.0%

-4.2%

-0.8%

-14.8%

-12.2%

-12.0%

0.0%

-5.5%

Currency-Neutral Comparable growth (h)

-2.3%

-1.8%

-1.2%

-1.3%

-1.8%

-2.5%

14.5%

6.8%

0.0%

0.1%














      Volume (tonnage) (i)





-0.9%

-2.4%

1.1%

9.4%

0.0%

-0.4%


      Pricing/mix





-0.9%

-0.1%

13.4%

-2.6%

0.0%

0.5%







































U.S.

U.S.

U.S.

North America

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

Other

America

Europe

America

Pacific

orate

dated

2015 operating profit 

$131

$160

$59

$37

$387

$57

($56)

$10

$14

$412

2014 operating profit

$137

$124

$63

$74

$398

$50

$47

$5

($33)

$467

% change - 2015 vs. 2014:











As Reported

-3.6%

29.6%

-5.9%

-51.6%

-2.5%

13.7%

-219.3%

147.2%

145.8%

-11.6%


Mark-to-market (a)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

163.2%

9.9%


Project K (b)

1.7%

-3.8%

-0.6%

-25.4%

-4.9%

8.5%

-4.6%

101.1%

4115.3%

-5.1%


VIE deconsolidation (c) 

0.0%

52.1%

0.0%

0.0%

15.7%

0.0%

0.0%

0.0%

0.0%

11.9%


Integration impact (d)

0.0%

0.0%

0.0%

0.0%

0.0%

7.7%

-0.9%

-9.5%

-68.3%

0.0%


Acquisitions/divestitures (e)

0.0%

0.0%

0.0%

0.0%

0.0%

1.5%

0.0%

0.0%

0.0%

0.3%


Venezuela remeasurement (f)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-212.0%

0.0%

-677.8%

-18.1%

Comparable growth (g)

-5.3%

-18.7%

-5.3%

-26.2%

-13.3%

-4.0%

-1.8%

55.6%

-3386.6%

-10.5%


Foreign currency impact

0.2%

0.0%

0.0%

-3.8%

-0.6%

-9.6%

-10.7%

-20.4%

-1860.7%

-3.7%

Currency-Neutral Comparable growth (h)

-5.5%

-18.7%

-5.3%

-22.4%

-12.7%

5.6%

8.9%

76.0%

-1525.9%

-6.8%

























(a)

Includes mark-to-market adjustments for pension plans, commodity contracts and certain foreign currency contracts as reflected in cost of goods sold and selling, general and administrative expense.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur. 

(b)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  

(c)

In connection with the deconsolidation of a VIE in the second quarter of 2015, we re-allocated the goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a $67 million non-cash gain.

(d)

Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.

(e)

Includes impact of Bisco Misr acquisition during second quarter of 2015 and the 2014 divestiture of Loma Linda.

(f)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(g)

Comparable net sales growth and comparable operating profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(h)

Currency-Neutral Comparable Net Sales growth and Currency Neutral Comparable Operating Profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  


(i)

We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.


 

 

Kellogg Company and Subsidiaries








Exhibit 6

Analysis of net sales and operating profit performance
























Year-to-date 2015 versus 2014
























U.S.

U.S.

U.S.

North

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

America Other

America

Europe

America

Pacific

orate

dated

2015 net sales

$1,518

$1,689

$631

$872

$4,710

$1,257

$623

$464

$0

$7,054

2014 net sales

$1,558

$1,715

$648

$946

$4,867

$1,472

$598

$490

$0

$7,427

% change - 2015 vs. 2014:











As Reported

-2.6%

-1.5%

-2.7%

-7.9%

-3.2%

-14.6%

4.3%

-5.2%

0.0%

-5.0%


Project K (b)

0.0%

0.0%

0.0%

-0.2%

0.0%

0.0%

0.1%

0.0%

0.0%

0.0%


Acquisitions/divestitures (e)

0.0%

0.0%

-0.7%

0.0%

-0.1%

1.5%

0.0%

0.0%

0.0%

0.2%


Differences in shipping days

0.0%

0.0%

0.0%

0.0%

0.0%

-0.2%

0.0%

0.0%

0.0%

0.0%

Comparable growth (g)

-2.6%

-1.5%

-2.0%

-7.7%

-3.1%

-15.9%

4.2%

-5.2%

0.0%

-5.2%


Foreign currency impact

0.0%

0.0%

0.0%

-4.0%

-0.8%

-15.1%

-10.9%

-10.6%

0.0%

-5.1%

Currency-Neutral Comparable growth (h)

-2.6%

-1.5%

-2.0%

-3.7%

-2.3%

-0.8%

15.1%

5.4%

0.0%

-0.1%














      Volume (tonnage) (i)





-1.7%

-0.6%

2.7%

7.2%

0.0%

-0.5%


      Pricing/mix





-0.6%

-0.2%

12.4%

-1.8%

0.0%

0.4%







































U.S.

U.S.

U.S.

North

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

America Other

America

Europe

America

Pacific

orate

dated

2015 operating profit 

$258

$240

$137

$96

$731

$118

($5)

$22

($70)

$796

2014 operating profit

$263

$210

$150

$157

$780

$115

$95

$21

$70

$1,081

% change - 2015 vs. 2014:











As Reported

-1.8%

14.5%

-8.4%

-39.1%

-6.2%

2.7%

-105.4%

12.1%

-197.8%

-26.3%


Mark-to-market (a)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-175.9%

-11.0%


Project K (b)

1.8%

-3.1%

-0.3%

-14.2%

-3.2%

-1.7%

-1.5%

16.3%

-17.6%

-4.1%


VIE deconsolidation (c) 

0.0%

30.2%

0.0%

0.0%

8.1%

0.0%

0.0%

0.0%

0.0%

6.0%


Integration impact (d)

0.0%

0.0%

0.0%

0.0%

0.0%

4.4%

-0.4%

-10.3%

-23.0%

-0.1%


Acquisitions/divestitures (e)

0.0%

0.0%

0.1%

0.0%

0.0%

1.1%

0.0%

0.0%

0.0%

0.2%


Differences in shipping days

0.0%

0.0%

0.0%

0.0%

0.0%

-0.3%

0.0%

0.0%

0.0%

0.0%


Venezuela remeasurement (f)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-101.0%

0.0%

-30.5%

-9.1%

Comparable growth (g)

-3.6%

-12.6%

-8.2%

-24.9%

-11.1%

-0.8%

-2.5%

6.1%

49.2%

-8.2%


Foreign currency impact

0.2%

0.0%

0.0%

-4.0%

-0.7%

-9.9%

-9.5%

-15.3%

-166.7%

-3.8%

Currency-Neutral Comparable growth (h)

-3.8%

-12.6%

-8.2%

-20.9%

-10.4%

9.1%

7.0%

21.4%

215.9%

-4.4%













(a)

Includes mark-to-market adjustments for pension plans, commodity contracts and certain foreign currency contracts as reflected in cost of goods sold and selling, general and administrative expense.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur. 

(b)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  

(c)

In connection with the deconsolidation of a VIE in the second quarter of 2015, we re-allocated the goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a $67 million non-cash gain.

(d)

Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.

(e)

Includes impact of Bisco Misr acquisition during year-to-date period ended July 4, 2015 and the 2014 divestiture of Loma Linda.

(f)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(g)

Comparable net sales growth and comparable operating profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  


(h)

Currency-Neutral Comparable Net Sales growth and Currency Neutral Comparable Operating Profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  


(i)

We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.


 

 

Kellogg Company and Subsidiaries





Exhibit 7

Restructuring and cost reduction activities







(Pre-tax millions)
























Quarter ended July 4, 2015


Year-to-date period ended July 4, 2015




Net Sales

Cost of goods sold

Selling, general and administrative expense

Total


Net Sales

Cost of goods sold

Selling, general and administrative expense

Total

2015












U.S. Morning Foods

$              -

$            11

$                        2

$           13


$              -

$            16

$                        5

$           21


U.S. Snacks

-

8

2

10


-

13

6

19


U.S. Specialty

-

-

1

1


-

-

2

2


North America Other

-

23

-

23


2

25

2

29


Europe

-

20

5

25


-

36

8

44


Latin America

-

1

-

1


-

1

-

1


Asia Pacific

-

2

1

3


-

6

2

8


Corporate

-

-

14

14


-

-

34

34



Total

$              -

$            65

$                       25

$           90


$              2

$            97

$                       59

$         158















Quarter ended June 28, 2014


Year-to-date period ended June 28, 2014



Net Sales

Cost of goods sold

Selling, general and administrative expense

Total


Net Sales

Cost of goods sold

Selling, general and administrative expense

Total

2014












U.S. Morning Foods

$              -

$            15

$                         -

$           15


$              -

$            24

$                        2

$           26


U.S. Snacks

-

4

(1)

3


-

9

1

10


U.S. Specialty

-

1

(1)

-


-

1

-

1


North America Other

-

4

2

6


-

6

3

9


Europe

-

4

24

28


-

9

31

40


Latin America

-

-

1

1


-

-

5

5


Asia Pacific

-

2

3

5


-

6

5

11


Corporate

-

1

19

20


-

1

29

30



Total

$              -

$            31

$                       47

$           78


$              -

$            56

$                       76

$         132













2015 Variance - better(worse) than 2014











U.S. Morning Foods

$              -

$              4

$                       (2)

$             2


$              -

$              8

$                       (3)

$             5


U.S. Snacks

-

(4)

(3)

(7)


-

(4)

(5)

(9)


U.S. Specialty

-

1

(2)

(1)


-

1

(2)

(1)


North America Other

-

(19)

2

(17)


(2)

(19)

1

(20)


Europe

-

(16)

19

3


-

(27)

23

(4)


Latin America

-

(1)

1

-


-

(1)

5

4


Asia Pacific

-

-

2

2


-

-

3

3


Corporate

-

1

5

6


-

1

(5)

(4)



Total

$              -

$           (34)

$                       22

$          (12)


$             (2)

$           (41)

$                       17

$          (26)

 

 

Kellogg Company and Subsidiaries




Exhibit 8

Integration costs*









(Pre-tax millions)
























Quarter ended July 4, 2015


Year-to-date period ended July 4, 2015




Net Sales

Cost of goods sold

Selling, general and administrative expense

Total


Net Sales

Cost of goods sold

Selling, general and administrative expense

Total

2015












Europe

$              -

$              2

$                        1

$             3


$              -

$              5

$                        3

$             8


Asia Pacific

-

1

1

2


-

4

1

5


Corporate

-

-

1

1


-

-

1

1



Total

$              -

$              3

$                        3

$             6


$              -

$              9

$                        5

$           14















Quarter ended June 28, 2014


Year-to-date period ended June 28, 2014



Net Sales

Cost of goods sold

Selling, general and administrative expense

Total


Net Sales

Cost of goods sold

Selling, general and administrative expense

Total

2014












Europe

$              -

$              5

$                        3

$             8


$              -

$              9

$                        5

$           14


Asia Pacific

-

1

1

2


-

1

1

2


Corporate

-

-

-

-


-

-

1

1



Total

$              -

$              6

$                        4

$           10


$              -

$            10

$                        7

$           17













2015 Variance - better(worse) than 2014










Europe

$              -

$              3

$                        2

$             5


$              -

$              4

$                        2

$             6


Asia Pacific

-

-

-

-


-

(3)

-

(3)


Corporate

-

-

(1)

(1)


-

-

-

-



Total

$              -

$              3

$                        1

$             4


$              -

$              1

$                        2

$             3













* Integration costs are charges incurred by the Company as a direct result of the work performed for the acquisition of the Bisco Misr and Pringles businesses.

 

 

Kellogg Company and Subsidiaries







Exhibit 9

Venezuela remeasurement*










(Pre-tax millions)




























Quarter ended July 4, 2015


Year-to-date period ended July 4, 2015




Net Sales

Cost of goods sold

Selling, general and administrative expense

Other (income) expense

Total


Net Sales

Cost of goods sold

Selling, general and administrative expense

Other (income) expense

Total

2015














Latin America

$              -

$            99

$                        3

$            10

$         112


$              -

$            99

$                        3

$        10

$         112


Corporate

-

1

-

39

40


-

1

-

39

40



Total

$              -

$          100

$                        3

$            49

$         152


$              -

$          100

$                        3

$        49

$         152

















Quarter ended June 28, 2014


Year-to-date period ended June 28, 2014



Net Sales

Cost of goods sold

Selling, general and administrative expense

Other (income) expense

Total


Net Sales

Cost of goods sold

Selling, general and administrative expense

Other (income) expense

Total

2014














Latin America

$              -

$              -

$                         -

$               -

$              -


$              -

$              -

$                         -

$           -

$              -


Corporate

-

-

-

-

-


-

-

-

-

-



Total

$              -

$              -

$                         -

$               -

$              -


$              -

$              -

$                         -

$           -

$              -















2015 Variance - better(worse) than 2014












Latin America

$              -

$           (99)

$                       (3)

$           (10)

$        (112)


$              -

$           (99)

$                       (3)

$       (10)

$        (112)


Corporate

-

(1)

-

(39)

(40)


-

(1)

-

(39)

(40)



Total

$              -

$         (100)

$                       (3)

$           (49)

$        (152)


$              -

$         (100)

$                       (3)

$       (49)

$        (152)















*

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

 

 

Kellogg Company and Subsidiaries








Exhibit 10

Reconciliation of Non-GAAP Amounts - Reported Net Sales to Currency-Neutral Comparable Net Sales






































Quarter ended July 4, 2015













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$                 742

$     835

$     270

$                439

$     650

$             328

$          234

$             -

$          3,498


Project K(a)

-

-

-

-

-

-

-

-

-


Acquisitions/divestitures(b)

-

-

-

-

15

-

-

-

15


Differences in shipping days

-

-

-

-

-

-

-

-

-

Comparable Net Sales(c)

$                 742

$     835

$     270

$                439

$     635

$             328

$          234

$             -

$          3,483


Foreign currency impact

-

-

-

(19)

(113)

(39)

(31)

-

(202)

Currency-Neutral Comparable Net Sales(d)

$                 742

$     835

$     270

$                458

$     748

$             367

$          265

$             -

$          3,685






















Quarter ended June 28, 2014













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$                 759

$     851

$     276

$                464

$     767

$             320

$          248

$             -

$          3,685


Project K(a)

-

-

-

-

-

-

-

-

-


Acquisitions/divestitures(b)

-

-

3

-

-

-

-

-

3


Differences in shipping days

-

-

-

-

-

-

-

-

-

Comparable Net Sales(c)

$                 759

$     851

$     273

$                464

$     767

$             320

$          248

$             -

$          3,682


Foreign currency impact

-

-

-

-

-

-

-

-

-

Currency-Neutral Comparable Net Sales(d)

$                 759

$     851

$     273

$                464

$     767

$             320

$          248

$             -

$          3,682













(a)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.

(b)

Includes impact of Bisco Misr acquisition during second quarter of 2015 and the 2014 divestiture of Loma Linda.




(c)

Comparable Net Sales is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(d)

Currency-Neutral Comparable Net Sales is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  

 

 

Kellogg Company and Subsidiaries








Exhibit 11

Reconciliation of Non-GAAP Amounts - Reported Net Sales to Currency-Neutral Comparable Net Sales







































Year-to-date period ended July 4, 2015













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$              1,518

$     1,689

$       631

$                872

$       1,257

$             623

$          464

$             -

$            7,054


Project K(a)

-

-

-

(2)

-

-

-

-

(2)


Acquisitions/divestitures(b)

-

-

-

-

23

-

-

-

23


Differences in shipping days

-

-

-

-

(3)

-

-

-

(3)

Comparable Net Sales(c)

$              1,518

$     1,689

$       631

$                874

$       1,237

$             623

$          464

$             -

$            7,036


Foreign currency impact

-

-

-

(37)

(223)

(65)

(53)

-

(378)

Currency-Neutral Comparable Net Sales(d)

$              1,518

$     1,689

$       631

$                911

$       1,460

$             688

$          517

$             -

$            7,414






















Year-to-date period ended June 28, 2014













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$              1,558

$     1,715

$       648

$                946

$       1,472

$             598

$          490

$             -

$            7,427


Project K(a)

-

-

-

-

-

-

-

-

-


Acquisitions/divestitures(b)

-

-

5

-

-

-

-

-

5


Differences in shipping days

-

-

-

-

-

-

-

-

-

Comparable Net Sales(c)

$              1,558

$     1,715

$       643

$                946

$       1,472

$             598

$          490

$             -

$            7,422


Foreign currency impact

-

-

-

-

-

-

-

-

-

Currency-Neutral Comparable Net Sales(d)

$              1,558

$     1,715

$       643

$                946

$       1,472

$             598

$          490

$             -

$            7,422













(a)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.

(b)

Includes impact of Bisco Misr acquisition during year-to-date period ended July 4, 2015 and the 2014 divestiture of Loma Linda.





(c)

Comparable Net Sales is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(d)

Currency-Neutral Comparable Net Sales is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  

 

 

Kellogg Company and Subsidiaries









Exhibit 12

Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Comparable Operating Profit






































Quarter ended July 4, 2015













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$                 131

$     160

$          59

$                  37

$       57

$              (56)

$            10

$           14

$            412


Mark-to-market(a)

-

-

-

-

-

-

-

35

35


Project K(b)

(13)

(10)

(1)

(23)

(25)

(1)

(3)

(14)

(90)


VIE deconsolidation(c)

-

67

-

-

-

-

-

-

67


Integration impact(d)

-

-

-

-

(3)

-

(2)

(1)

(6)


Acquisitions/divestitures(e)

-

-

-

-

2

-

-

-

2


Venezuela remeasurement(f)

-

-

-

-

-

(102)

-

(1)

(103)

Comparable Operating Profit(g)

$                 144

$     103

$          60

$                  60

$       83

$               47

$            15

$            (5)

$            507


Foreign currency impact

-

-

-

(2)

(9)

(6)

(3)

(2)

(22)

Currency-Neutral Comparable Operating Profit(h)

$                 144

$     103

$          60

$                  62

$       92

$               53

$            18

$            (3)

$            529






















Quarter ended June 28, 2014













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$                 137

$     124

$          63

$                  74

$       50

$               47

$             5

$          (33)

$            467


Mark-to-market(a)

-

-

-

-

-

-

-

(12)

(12)


Project K(b)

(15)

(3)

-

(6)

(28)

(1)

(5)

(20)

(78)


VIE deconsolidation(c)

-

-

-

-

-

-

-

-

-


Integration impact(d)

-

-

-

-

(8)

-

(2)

-

(10)


Acquisitions/divestitures(e)

-

-

-

-

-

-

-

-

-


Venezuela remeasurement(f)

-

-

-

-

-

-

-

-

-

Comparable Operating Profit(g)

$                 152

$     127

$          63

$                  80

$       86

$               48

$            12

$            (1)

$            567


Foreign currency impact

-

-

-

-

-

-

-

-

-

Currency-Neutral Comparable Operating Profit(h)

$                 152

$     127

$          63

$                  80

$       86

$               48

$            12

$            (1)

$            567













(a)

Includes mark-to-market adjustments for pension plans, commodity contract and certain foreign currency contracts as reflected in cost of goods sold and selling, general and administrative expense.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur. 

(b)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  

(c)

In connection with the deconsolidation of a VIE in the second quarter of 2015, we re-allocated the goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a $67 million non-cash gain.

(d)

Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.

(e)

Includes impact of Bisco Misr acquisition during second quarter of 2015 and the 2014 divestiture of Loma Linda.

(f)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(g)

Comparable Operating Profit is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(h)

Currency-Neutral Comparable Operating Profit is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  

 

 

Kellogg Company and Subsidiaries








Exhibit 13

Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Comparable Operating Profit






































Year-to-date period ended July 4, 2015













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$                 258

$     240

$        137

$                  96

$     118

$                (5)

$             22

$          (70)

$              796


Mark-to-market(a)

-

-

-

-

-

-

-

(32)

(32)


Project K(b)

(21)

(19)

(2)

(29)

(44)

(1)

(8)

(34)

(158)


VIE deconsolidation(c)

-

67

-

-

-

-

-

-

67


Integration impact(d)

-

-

-

-

(8)

-

(5)

(1)

(14)


Acquisitions/divestitures(e)

-

-

-

-

2

-

-

-

2


Venezuela remeasurement(f)

-

-

-

-

-

(102)

-

(1)

(103)

Comparable Operating Profit(g)

$                 279

$     192

$        139

$                125

$     168

$               98

$             35

$            (2)

$            1,034


Foreign currency impact

1

-

-

(6)

(17)

(10)

(5)

(6)

(43)

Currency-Neutral Comparable Operating Profit(h)

$                 278

$     192

$        139

$                131

$     185

$             108

$             40

$             4

$            1,077






















Year-to-date period ended June 28, 2014













U.S.

U.S.

U.S.

North





Kellogg

(millions)


Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$                 263

$     210

$        150

$                157

$     115

$               95

$             21

$           70

$            1,081


Mark-to-market(a)

-

-

-

-

-

-

-

104

104


Project K(b)

(26)

(10)

(1)

(9)

(40)

(5)

(11)

(30)

(132)


VIE deconsolidation(c)

-

-

-

-

-

-

-

-

-


Integration impact(d)

-

-

-

-

(14)

-

(2)

(1)

(17)


Acquisitions/divestitures(e)

-

-

-

-

-

-

-

-

-


Venezuela remeasurement(f)

-

-

-

-

-

-

-

-

-

Comparable Operating Profit(g)

$                 289

$     220

$        151

$                166

$     169

$             100

$             34

$            (3)

$            1,126


Foreign currency impact

-

-

-

-

-

-

-

-

-

Currency-Neutral Comparable Operating Profit(h)

$                 289

$     220

$        151

$                166

$     169

$             100

$             34

$            (3)

$            1,126













(a)

Includes mark-to-market adjustments for pension plans, commodity contracts and certain foreign currency contracts as reflected in cost of goods sold and selling, general and administrative expense.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur. 

(b)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  

(c)

In connection with the deconsolidation of a VIE in the second quarter of 2015, we re-allocated the goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a $67 million non-cash gain.

(d)

Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.

(e)

Includes impact of Bisco Misr acquisition during year-to-date period ended July 4, 2015 and the 2014 divestiture of Loma Linda.

(f)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(g)

Comparable Operating Profit is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(h)

Currency-Neutral Comparable Operating Profit is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  

 

 

Kellogg Company and Subsidiaries







Exhibit 14

Reconciliation of Non-GAAP Amounts - Reported Net Income Attributable to Kellogg to

Currency-Neutral Comparable Net Income Attributable to Kellogg



















Year-to-date






 Quarter ended


period ended

(millions)




July 4, 2015

June 28, 2014


July 4, 2015

June 28, 2014










Reported Net Income Attributable to Kellogg



$     223

$       295


$      450

$         701


Mark-to-market(a)




22

(8)


(24)

72


Project K(b)




(64)

(58)


(111)

(94)


VIE deconsolidation(c)




75

-


50

-


Integration costs(d)




(5)

(7)


(11)

(12)


Acquisitions/divestitures(e)




1

-


1

-


Venezuela remeasurement(f)




(132)

-


(132)

-

Comparable Net Income Attributable to Kellogg(g)


$     326

$       368


677

735


Foreign currency impact



(18)

-


(37)

-

Currency-Neutral Comparable Net Income Attributable to Kellogg(h)


$     344

368


$      714

$         735




















(a)

Includes mark-to-market adjustments for pension plans, commodity contracts and certain foreign currency contracts as reflected in cost of goods sold and selling, general and administrative expense.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur. 

(b)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  

(c)

In connection with the deconsolidation of a VIE during the second quarter of 2015, we re-allocated goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a $67 million non-cash gain, which was recorded within operating profit.  In addition, as a result of the VIE agreement terminations and related settlements, we recognized a gain of $6 million in other income (expense), net during the quarter.  This second quarter gain, in combination with a related $25 million charge during the first quarter of 2015, resulted in a net loss of $19 million in other income (expense), net on a year-to-date basis.

(d)

Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.

(e)

Includes impact of Bisco Misr acquisition during the quarter and year-to-date periods ended July 4, 2015.

(f)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(g)

Comparable Net Income Attributable to Kellogg is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(h)

Currency-Neutral Comparable Net Income Attributable to Kellogg is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  

 

 

Kellogg Company and Subsidiaries





Exhibit 15

Reconciliation of Non-GAAP Amounts - Reported EPS to Currency-Neutral Comparable EPS








Year-to-date





 Quarter ended


period ended





July 4, 2015

June 28, 2014


July 4, 2015

June 28, 2014









Reported EPS


$         0.63

$              0.82


$         1.26

$             1.94


Mark-to-market(a)



0.06

(0.02)


(0.07)

0.20


Project K(b)



(0.18)

(0.16)


(0.31)

(0.26)


VIE deconsolidation(c)



0.21

-


0.14

-


Integration impact(d)



(0.01)

(0.02)


(0.03)

(0.03)


Venezuela remeasurement(e)


(0.37)

-


(0.37)

-

Comparable EPS(f)



$         0.92

$              1.02


$         1.90

$             2.03


Foreign currency impact


(0.05)

-


(0.11)

-

Currency-Neutral Comparable EPS(g)


$         0.97

$              1.02


$         2.01

$             2.03


















(a)

Includes mark-to-market adjustments for pension plans, commodity contracts and certain foreign currency contracts as reflected in cost of goods sold and selling, general and administrative expense.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur. 

(b)

Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.   

(c)

In connection with the deconsolidation of a VIE during the second quarter of 2015, we re-allocated goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a $67 million non-cash gain, which was recorded within operating profit.  In addition, as a result of the VIE agreement terminations and related settlements, we recognized a gain of $6 million in other income (expense), net during the quarter.  This second quarter gain, in combination with a related $25 million charge during the first quarter of 2015, resulted in a net loss of $19 million in other income (expense), net on a year-to-date basis.

(d)

Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.

(e)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(f)

Comparable EPS is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(g)

Currency-Neutral Comparable EPS is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.  

 

 

Kellogg Company and Subsidiaries







Reconciliation of Non-GAAP Amounts - Reported Effective Tax Rate



Exhibit 16

to Currency-Neutral Comparable Effective Tax Rate


















Quarter ended


Year-to-date period ended





July 4, 2015

June 28, 2014


July 4, 2015

June 28, 2014










Reported Effective Tax Rate


27.6%

29.0%


26.4%

28.9%



Mark-to-market(a)


1.1%

-0.2%


0.1%

0.1%



Project K


-0.5%

0.5%


-0.7%

0.1%



VIE deconsolidation(b)


-7.4%

0.0%


-1.9%

0.0%



Integration impact


0.3%

0.0%


0.2%

0.0%



Venezuela remeasurement(c)


7.2%

0.0%


2.6%

0.0%


Comparable Effective Tax Rate(d)


26.9%

28.7%


26.1%

28.7%



Foreign currency impact


0.8%

0.0%


0.7%

0.0%


Currency-Neutral Comparable Effective Tax Rate(e)


26.1%

28.7%


25.4%

28.7%


















(a)

Mark-to-market adjustments, in general, were incurred in jurisdictions with tax rates higher than our reported effective tax rate during the quarters and year-to-date periods ended July 4, 2015 and June 28, 2014.

(b)

In connection with the deconsolidation of a VIE during the second quarter of 2015, we re-allocated goodwill associated with the U.S. Snacks segment and the VIE on a relative fair value basis, resulting in a non-cash gain, which was recorded within operating profit.  In addition, as a result of the VIE agreement terminations and related settlements, we recognized a gain within other income (expense), net during the quarter.  This second quarter gain, in combination with a related charge during the first quarter of 2015, resulted in a net loss in other income (expense), net on a year-to-date basis.

(c)

Venezuela remeasurement includes the impact of remeasuring bolivar-denominated balances as of quarter end at the SIMADI rate of 198.4 bolivars to the US dollar.  The income statement for this business was translated at the CENCOEX rate of 6.3 bolivars to the U.S. dollar through the end of the second quarter.  Beginning in the third quarter of 2015, all operating results and balance sheet values will be translated using the SIMADI rate.

(d)

Comparable Effective Tax Rate is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.

(e)

Currency-Neutral Comparable Effective Tax Rate is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We evaluate the operating results of our business on a currency-neutral basis.  We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

 

 

Kellogg Company and Subsidiaries






Exhibit 17

RECAST SEGMENT DATA AS SHOWN ON Q1 2015 PRESS RELEASE


















2014 (millions)


Quarter ended


Year-to-date period ended






March 29, 2014

June 28, 2014

September 27,
2014

January 3,
2015


June 28, 2014

September 27,
2014

January 3,
2015














Net Sales (Recast*)












U.S. Morning Foods



$       799

$     759

$              782

$            768


$   1,558

$         2,340

$         3,108


U.S. Snacks



864

851

807

807


1,715

2,522

3,329


U.S. Specialty



372

276

270

280


648

918

1,198


North America Other



482

464

470

448


946

1,416

1,864


    North America Total


2,517

2,350

2,329

2,303


4,867

7,196

9,499


Europe




705

767

720

677


1,472

2,192

2,869


Latin America



278

320

320

287


598

918

1,205


Asia Pacific



242

248

270

247


490

760

1,007


Consolidated



$    3,742

$   3,685

$           3,639

$         3,514


$   7,427

$        11,066

$       14,580



























Operating Profit (Recast*)












U.S. Morning Foods



$       126

$     137

$              115

$            101


$     263

$            378

$            479


U.S. Snacks



86

124

59

95


210

269

364


U.S. Specialty



87

63

59

57


150

209

266


North America Other



83

74

69

68


157

226

294


    North America Total


382

398

302

321


780

1,082

1,403


Europe



65

50

59

58


115

174

232


Latin America



48

47

50

24


95

145

169


Asia Pacific



16

5

18

14


21

39

53


    Total Reportable Segments


511

500

429

417


1,011

1,440

1,857


Corporate



103

(33)

(64)

(839)


70

6

(833)


Consolidated



$       614

$     467

$              365

$           (422)


$   1,081

$         1,446

$         1,024

*  During the first quarter of 2015, the Kashi operating segment was established and is included in North America Other.  The Kashi financial results that were previously included in the U.S. Morning Foods, U.S. Snacks, and U.S. Frozen Foods operating segments are now reported in the Kashi operating segment which is reported in North America Other. Other business unit re-organizations occurred between Europe and Asia Pacific.

















2014 (millions)



Quarter ended


Year-to-date period ended






March 29, 2014

June 28, 2014

September 27,
2014

January 3,
2015


June 28, 2014

September 27,
2014

January 3,
2015














Net Sales (As originally reported)











U.S. Morning Foods



$       861

$     820

$              841

$            816


$   1,681

$         2,522

$         3,338


U.S. Snacks



903

893

849

850


1,796

2,645

3,495


U.S. Specialty



372

276

270

280


648

918

1,198


North America Other



381

361

369

357


742

1,111

1,468


    North America Total


2,517

2,350

2,329

2,303


4,867

7,196

9,499


Europe




708

772

726

681


1,480

2,206

2,887


Latin America



278

320

320

287


598

918

1,205


Asia Pacific



239

243

264

243


482

746

989


Consolidated



$    3,742

$   3,685

$           3,639

$         3,514


$   7,427

$        11,066

$       14,580



























Operating Profit (As originally reported)











U.S. Morning Foods



$       128

$     143

$              118

$            101


$     271

$            389

$            490


U.S. Snacks



95

130

67

103


225

292

395


U.S. Specialty



87

63

59

57


150

209

266


North America Other



72

62

58

60


134

192

252


    North America Total


382

398

302

321


780

1,082

1,403


Europe




67

53

61

59


120

181

240


Latin America



48

47

50

24


95

145

169


Asia Pacific



14

2

16

13


16

32

45


    Total Reportable Segments


511

500

429

417


1,011

1,440

1,857


Corporate




103

(33)

(64)

(839)


70

6

(833)


Consolidated



$       614

$     467

$              365

$           (422)


$   1,081

$         1,446

$         1,024

 

 

SOURCE Kellogg Company

For further information: Analyst Contact: Simon Burton, CFA (269) 961-6636, Media Contact: Kris Charles (269) 961-3799