Kellogg Reports Strong Fourth Quarter and Full-Year Growth

BATTLE CREEK, Mich., Jan 30, 2007 (PrimeNewswire via COMTEX News Network) -- Kellogg Company (NYSE:K) today reported strong fourth quarter and full-year earnings. Annual earnings were $2.51 per share; fourth quarter earnings were $0.45 per share. This result represented the fifth consecutive year that the Company has met, or exceeded, its long-term growth targets.

Reported net earnings for the full year 2006 were $1,004.1 million, or a 2% increase from last year's $980.4 million. Earnings were $2.51 per diluted share, an increase of 6% from $2.36 per share in 2005. This year's result included an impact of $0.11 from the expensing of stock options pursuant to the adoption of SFAS No. 123(R); excluding this effect full-year earnings per share growth was 11 percent. Reported net earnings in the fourth quarter of 2006 were $182.4 million, or $0.45 per diluted share, compared to $192.4 million, or $0.47 per share in the fourth quarter of 2005. This result included an effect of $0.03 from the expensing of stock options and investment in up-front costs of $0.08 per share, an amount significantly greater than was invested in the fourth quarter of 2005.

"In 2006, our Company posted another year of strong, above-target rates of growth," said David Mackay, Kellogg's chief executive officer. "We managed this while continuing to invest in future growth and while absorbing another year of significant cost inflation."

Reported net sales in 2006 increased by 7% to $10.9 billion; fourth quarter sales were $2,583.9 million, which represents growth of 8% from the fourth quarter of 2005. Internal net sales growth, which excludes the effect of foreign-currency translation was also 7% for the full year and 6% in the fourth quarter.

Kellogg North America reported net sales growth of 8% in 2006, and 7% in the fourth quarter. Internal sales growth was also an excellent 8% in 2006, which built on very strong growth of 8% in 2005. Internal sales growth in the fourth quarter of 6 percent also built on 8% growth in the fourth quarter of 2005. The Company gained measured channel U.S. ready-to-eat cereal category share again in 2006. This was driven by the North America Retail Cereal business posting internal sales growth of 3% for the full year after posting strong 8% growth in 2005. North America Retail Cereal internal sales decreased by 2% in the fourth quarter after posting 8% growth in the fourth quarter of 2005. Consumption growth in all channels in the quarter was approximately 3%, in line with full-year growth; the difference between shipments and consumption in the fourth quarter is attributable to a decrease in trade inventory levels. North America Retail Snacks posted full-year internal sales growth of 11% in 2006, which built on 7% growth in 2005. In the fourth quarter, Retail Snacks' internal sales increased by 12%, adding to the strong 8% growth posted in the fourth quarter of 2005. The Frozen and Specialty Channels businesses posted internal growth of 8% for the full year and the fourth quarter. The Eggo business posted high single-digit sales growth in 2006 after posting double-digit growth in each of the previous two years. The Specialty Channels businesses posted high single-digit internal sales growth for the full year and the fourth quarter.

Kellogg International reported net sales growth of 6% in 2006 and 11% in the fourth quarter. Internal sales growth was 5% for the full year, building on 4% growth in 2005. Internal sales growth in the fourth quarter was 6 percent, building on strong growth of 3% in the fourth quarter of 2005. This excellent sales growth accompanied category share gains in many of the regions in which the Company competes around the world. The Latin American business posted internal sales growth of 9% in 2006, even after posting 11% growth in 2005. Internal growth in the fourth quarter was 7 percent, building on exceptional 14% growth in the fourth quarter of 2005. Full-year growth was driven by mid single-digit sales growth in the Mexican market and double-digit internal sales growth in various other parts of the region. Internal net sales growth in our European business increased at a 5% rate for the full year, the best result posted for ten years. Europe posted 6% internal sales growth in the fourth quarter alone as the result of continued innovation and excellent brand-building programs. Full-year sales of both cereal and snacks increased at a mid single-digit rate in the U.K., the region's largest business. The Asia Pacific business posted approximately unchanged internal sales growth for the full year. Internal sales growth was 1% in the fourth quarter, due to a difficult competitive environment in the snacks business in Australia.

Gross margin for the full year of 2006 was 44.2 percent, 70 basis points lower than in 2005. Incremental increases in fuel, energy, commodity, and benefit costs adversely impacted gross margin by 150 basis points. Gross margin in the fourth quarter was 43.3 percent, down 30 basis points from the fourth quarter of 2005. Increased up-front costs in the fourth quarter adversely impacted gross margin by 70 basis points; increased fuel, energy, commodity, and benefit costs lowered fourth quarter gross margin by 160 basis points. The Company expects its gross profit margin to decline by less than 50 basis points in 2007 as a result of continued, significant cost inflation.

Operating profit for the full year was $1.8 billion, an increase of 1% from 2005. Operating profit in the fourth quarter was $344 million, approximately unchanged from the fourth quarter of 2005. Internal operating profit, which excludes the effect of foreign-currency translation and the expensing of stock options, increased by 4% for the full year and fourth quarter. Operating profit growth for both the fourth quarter and full year was achieved despite significant cost inflation.

In 2006, cash flow, defined as cash from operating activities less capital expenditures, was $957 million. The Company repurchased $650 million of its stock in 2006 and has repurchased more than $1.3 billion over the course of the last two years. The Company's debt level increased only moderately during 2006, while debt net of cash declined slightly.

Kellogg Company Raises Outlook For 2007

The Company stated that it now expects that full-year 2007 earnings will fall within a range of $2.68-2.73 per share. This estimate includes estimates for significant commodity cost-inflation and continued investment in brand building and innovation. The Company also continues to anticipate that investment in up-front costs in 2007 will approximately equal the levels of investment made in recent years. In addition, the Company expects that full-year internal sales growth could be 4%, slightly greater than its long-term targets.

Mr. Mackay concluded, "We faced a difficult cost environment in 2006 and still achieved another year of results that met, or even exceeded, our targets. Equally as important, though, is that we achieved these results while making significant investment in the business, and in future growth. This again demonstrates the flexibility of our approach to business and the dedication of our employees around the world. We will face more inflation in 2007, but we remain confident that we have the right strategy, operating principles, and business model. It is our continued focus and strong execution, driven by the strength of our organization, that give us confidence that we will deliver dependable rates of growth in 2007, and beyond."

About Kellogg Company

With 2006 sales of nearly $11 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, frozen waffles, and meat alternatives. The Company's brands include Kellogg's, Keebler, Pop-Tarts, Eggo, Cheez-It, Club, Nutri-Grain, Rice Krispies, All-Bran, Special K, Mini-Wheats, Chips Deluxe, Sandies, Morningstar Farms, Famous Amos, and Kashi. Kellogg products are manufactured in 17 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.primenewswire.com/newsroom/prs/?pkgid=3194

Forward-Looking Statements Disclosure

This news release contains forward-looking statements related to business performance, earnings, costs, brand building, and cost-saving initiatives. Actual performance may differ materially from these statements due to factors related to competitive conditions and their impact; the effectiveness of advertising, pricing and promotional spending; the success of productivity improvements and business transitions; the success of innovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the availability of and interest rates on short-term financing; commodity and energy prices and labor costs; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses; changes in consumer behavior and preferences; U.S. and foreign economic factors such as interest rates, statutory tax rates, and foreign currency conversions or unavailability; legal and regulatory factors; business disruption or other losses from terrorist acts or political unrest; and other factors.

 Kellogg Company and Subsidiaries
 CONSOLIDATED STATEMENT OF EARNINGS
 (millions, except per share data)
 =====================================================================
                             Quarter ended            Year ended
                           -------------------   ---------------------
 (Results are              Dec. 30,   Dec. 31,    Dec. 30,   Dec. 31,
   unaudited)                2006       2005        2006       2005
 =====================================================================
 Net sales                 $2,583.9   $2,394.3   $10,906.7   $10,177.2

 Cost of goods sold         1,464.2    1,349.2     6,081.5     5,611.6
 Selling and administrative
  expense                     775.2      700.8     3,059.4     2,815.3
 ---------------------------------------------------------------------

 Operating profit             344.5      344.3     1,765.8     1,750.3

 Interest expense              79.9       67.2       307.4       300.3
 Other income (expense),
  net                           1.9       (5.7)       13.2       (24.9)
 ---------------------------------------------------------------------

 Earnings before income
  taxes                       266.5      271.4     1,471.6     1,425.1
 Income taxes                  83.6       79.0       466.5       444.7
 Earnings (loss) from
  joint ventures               (0.5)        --        (1.0)         --
 ---------------------------------------------------------------------

 Net earnings              $  182.4   $  192.4   $ 1,004.1   $   980.4
 =====================================================================

 Net earnings per share:
   Basic                   $    .46   $    .47   $    2.53   $    2.38
   Diluted                 $    .45   $    .47   $    2.51   $    2.36

 Dividends per share       $  .2910   $  .2775   $  1.1370   $  1.0600
 =====================================================================

 Average shares outstanding:
   Basic                      397.9      409.7       397.0       412.0
 ---------------------------------------------------------------------
   Diluted                    401.2      412.7       400.4       415.6
 ---------------------------------------------------------------------

 Actual shares outstanding
  at period end                                      397.7       405.3
 =====================================================================

 Kellogg Company and Subsidiaries
 SELECTED OPERATING SEGMENT DATA
 (millions)
 =====================================================================
                             Quarter ended            Year ended
                           -------------------   ---------------------
 (Results are              Dec. 30,   Dec. 31,    Dec. 30,   Dec. 31,
   unaudited)                2006       2005        2006       2005
 =====================================================================
 Net sales
   North America          $1,737.9    $1,631.6   $ 7,348.8   $ 6,807.8
   Europe                    507.7       443.0     2,143.8     2,013.6
   Latin America             215.0       202.2       890.8       822.2
   Asia Pacific (a)          123.3       117.5       523.3       533.6
   -------------------------------------------------------------------
   Consolidated           $2,583.9    $2,394.3   $10,906.7   $10,177.2
   ===================================================================

 ---------------------------------------------------------------------

 Operating profit
   North America          $  319.4    $  271.6   $ 1,340.5   $ 1,251.5
   Europe                     39.4        56.3       334.1       330.7
   Latin America              42.6        42.6       220.1       202.8
   Asia Pacific (a)           15.4        13.0        76.9        86.0
   Corporate                 (72.3)      (39.2)     (205.8)     (120.7)
   -------------------------------------------------------------------
   Consolidated           $  344.5    $  344.3   $ 1,765.8   $ 1,750.3
   ===================================================================

 =====================================================================
 (a) Includes Australia and Asia.


 Kellogg Company and Subsidiaries
 CONSOLIDATED STATEMENT OF CASH FLOWS
 (millions)
 =====================================================================
                                                    Year ended
                                             -------------------------
                                           December 30,    December 31,
 (unaudited)                                   2006            2005
 =====================================================================
 Operating activities

 Net earnings                                $1,004.1       $  980.4
 Adjustments to reconcile net earnings to
 operating cash flows:
   Depreciation and amortization                352.7          391.8
   Deferred income taxes                        (43.7)         (59.2)
   Other (a)                                    235.2          199.3
 Postretirement benefit plan contributions      (99.3)        (397.3)
 Changes in operating assets and liabilities    (38.5)          28.3
 ---------------------------------------------------------------------

 Net cash provided by operating activities    1,410.5        1,143.3
 ---------------------------------------------------------------------

 Investing activities

 Additions to properties                       (453.1)        (374.2)
 Acquisitions of businesses                        --          (50.4)
 Investments in joint ventures                   (1.9)            --
 Other                                            9.6            9.6
 ---------------------------------------------------------------------

 Net cash used in investing activities         (445.4)        (415.0)
 ---------------------------------------------------------------------

 Financing activities

 Net issuances of notes payable                 156.0          360.5
 Issuances of long-term debt                       --          647.3
 Repayments of long-term debt                   (84.7)      (1,041.3)
 Net issuances of common stock                  217.5          221.7
 Common stock repurchases                      (649.8)        (664.2)
 Cash dividends                                (449.9)        (435.2)
 Other                                           21.9            5.9
 ---------------------------------------------------------------------

 Net cash used in financing activities         (789.0)        (905.3)
 ---------------------------------------------------------------------

 Effect of exchange rate changes on cash         15.4          (21.3)
 ---------------------------------------------------------------------

 Increase in cash and cash equivalents          191.5         (198.3)
 Cash and cash equivalents at beginning
  of period                                     219.1          417.4
 ---------------------------------------------------------------------

 Cash and cash equivalents at end of period  $  410.6       $  219.1
 =====================================================================

 =====================================================================
 Supplemental Financial Data:

 Cash Flow (operating cash flow less
  property additions) (b)                    $  957.4       $  769.1
 =====================================================================
 (a) Consists principally of non-cash expense accruals for employee
     compensation and benefit obligations.
 (b) We use this non-GAAP measure of cash flow to focus management
     and investors on the amount of cash available for debt reduction,
     dividend distributions, acquisition opportunities, and share
     repurchase.

 Kellogg Company and Subsidiaries
 CONSOLIDATED BALANCE SHEET
 =====================================================================
 (millions, except per share data)           December 30,  December 31,
                                                2006          2005
                                             (unaudited)        *
 =====================================================================
 Current assets
 Cash and cash equivalents                    $   410.6    $   219.1
 Accounts receivable, net                         944.8        879.1
 Inventories:
     Raw materials and supplies                   200.7        188.6
     Finished goods and materials in process      623.2        528.4
 Deferred income taxes                            115.9        207.6
 Other prepaid assets                             131.8        173.7
 ---------------------------------------------------------------------
 Total current assets                           2,427.0      2,196.5

 Property, net of accumulated depreciation
   of $4,102.0 and $3,815.6                     2,815.6      2,648.4
 Goodwill                                       3,448.3      3,455.3
 Other intangibles, net of accumulated
  amortization of $49.1 and $47.6               1,419.7      1,438.2
 Pension                                          352.6        629.8
 Other assets                                     250.8        206.3
 ---------------------------------------------------------------------
 Total assets                                 $10,714.0    $10,574.5
 =====================================================================
 Current liabilities
 Current maturities of long-term debt         $   723.3    $    83.6
 Notes payable                                  1,268.0      1,111.1
 Accounts payable                                 910.4        883.3
 Accrued advertising and promotion                338.0        320.9
 Accrued income taxes                             151.7        148.3
 Accrued salaries and wages                       311.1        276.5
 Other current liabilities                        317.7        339.1
 ---------------------------------------------------------------------
 Total current liabilities                      4,020.2      3,162.8

 Long-term debt                                 3,053.0      3,702.6
 Deferred income taxes                            619.3        945.8
 Other liabilities                                952.5        479.6

 Shareholders' equity
 Common stock, $.25 par value                     104.6        104.6
 Capital in excess of par value                   292.3         58.9
 Retained earnings                              3,630.4      3,266.1
 Treasury stock, at cost                         (912.1)      (569.8)
 Accumulated other comprehensive
  income (loss)                                (1,046.2)      (576.1)
 ---------------------------------------------------------------------
 Total shareholders' equity                     2,069.0      2,283.7
 ---------------------------------------------------------------------
 Total liabilities and
  shareholders' equity                        $10,714.0    $10,574.5
 =====================================================================

 * Condensed from audited financial statements.

 The Company adopted SFAS No. 158, "Employers' Accounting for
 Defined Benefit Pension and Other Postretirement Plans" as of the
 end of its fiscal year. The standard generally requires company
 plan sponsors to reflect the net over- or under-funded position of
 a defined postretirement benefit plan as an asset or liability on
 the balance sheet. Accordingly, the presentation of these amounts
 on the balance sheet reduced consolidated net assets and
 shareholders' equity by $591.9 million at year-end 2006. The
 Company's net earnings, cash flow, liquidity, debt covenants, and
 plan funding requirements were not affected by this change in
 accounting principle.


 Kellogg Company and Subsidiaries

 IMPACT OF STOCK COMPENSATION RECOGNIZED IN 2006 UNDER SFAS NO. 123(R)
 "SHARE-BASED PAYMENT"
 =====================================================================
 (millions, except per share data)

 (unaudited)
                                          Excluding impact
                     Reported              of SFAS 123(R)*       Impact
            ------------------------  ------------------------   ------
             Quarter ended             Quarter ended
            ----------------          ----------------
            Dec. 30, Dec. 31,  Pct.   Dec. 30, Dec. 31,  Pct.
             2006     2005    Growth   2006     2005    Growth
            -------  -------  ------  -------  -------  ------
 Operating
  profit     $344.5   $344.3    0.1%   $363.1   $344.3    5.5%    -5.4%
 Net
  earnings   $182.4   $192.4   -5.2%   $194.4   $192.4    1.0%    -6.2%
 Diluted net
  earnings
  per share  $ 0.45   $ 0.47   -4.3%   $ 0.48   $ 0.47    2.1%    -6.4%
            ------------------------  ------------------------

                                          Excluding impact
                     Reported              of SFAS 123(R)*       Impact
            ------------------------  ------------------------   ------
               Year ended                Year ended
            ----------------          ----------------
            Dec. 30, Dec. 31,  Pct.   Dec. 30, Dec. 31,  Pct.
             2006     2005    Growth    2006     2005    Growth
            -------  -------  ------  -------  --------  ------
 Operating
  profit   $1,765.8  $1,750.3  0.9%  $1,831.2  $1,750.3    4.6%   -3.7%
 Net
  earnings $1,004.1  $  980.4  2.4%  $1,046.5  $  980.4    6.7%   -4.3%
 Diluted net
  earnings
  per share   $2.51     $2.36  6.4%     $2.62     $2.36   11.0%   -4.6%
            ------------------------  ------------------------

 Stock compensation:           Quarter         YTD
                               -------       ------
 Before tax                      $18.6        $65.4
 Net of tax                      $12.0        $42.4
 Per share impact                $0.03        $0.11

   * Results excluding the impact of adopting SFAS No.123(R) are
     Non-GAAP measures which management used to assist investors in
     assessing the Company's 2006 financial operating performance
     against comparable periods.

 =====================================================================

This news release was distributed by PrimeNewswire, www.primenewswire.com

SOURCE: Kellogg Company

Kellogg Company 
          Simon D. Burton, CFA
          (269) 961-6636

(C) Copyright 2006 PrimeNewswire, Inc. All rights reserved.

Q4 and YE 2006 Earnings