Kellogg Posts Strong Start to the Year; Raises Guidance

BATTLE CREEK, Mich., Apr 30, 2007 -- Kellogg Company (NYSE:K) today reported stronger than expected first quarter sales, operating profit, and earnings growth. These results were driven by innovation and effective brand building and were achieved despite cost headwinds and investment in future growth.

Reported net earnings for the quarter were $321 million, a 17% increase from last year's $274 million. Earnings were $0.80 per diluted share, an 18% increase from last year's $0.68 per share. This year's results built on 11% growth in the comparable period of last year. First quarter earnings per share included a discrete tax benefit of approximately $40 million. As was previously disclosed, this was anticipated in the Company's full-year earnings forecast.

"Last year's momentum continued in the first quarter of 2007," said David Mackay, Kellogg's chief executive officer. "Importantly, we posted these positive results while following our business model and making considerable investment in our brands, and in future growth."

Reported net sales in the quarter increased by 9% to $3.0 billion. Internal net sales growth, which excludes the effect of foreign-currency translation, was 7% and built on growth of 7% in the first quarter of last year.

Kellogg North America posted reported net sales growth of 7%; internal net sales growth was also 7%, driven by growth in each of the businesses. Retail Cereal posted internal sales growth of 4%, driven by brand building, recent innovation, and last year's pricing action. The Retail Snacks business posted double-digit internal sales growth of 11% as a result of growth in cookies, crackers, fruit snacks, and wholesome snacks. In combination, the North America Frozen and Specialty Channels businesses posted internal net sales growth of 5 percent. Both the Food-Away-From-Home and frozen food businesses posted growth in the quarter.

Kellogg International reported first quarter net sales growth of 12%, or 5% excluding the favorable effect of currency translation; this built on 5% internal growth in the first quarter of 2006. Latin America posted internal sales growth of 8%, building on double-digit growth in the first quarter of last year. Once again, both the cereal and snacks businesses contributed to these results. Internal net sales in the European region increased by 6%, driven by mid single-digit growth in the cereal business and excellent, double-digit growth in the snacks business. The Asia Pacific region posted an internal net sales decline of 2 percent.

Reported operating profit was $499 million in the first quarter, an increase of 6% from the first quarter of last year. Internal operating profit growth, which excludes the impact of foreign exchange, was 3% in the first quarter and built on 6% growth in the first quarter of last year. The Company achieved these results despite a significant increase in cost inflation and a double-digit increase in its advertising investment which supported both new and existing brands. The Company continues to expect that up-front costs related to cost-reduction initiatives for the full year will equate to approximately $0.14 of earnings per share, an amount similar to last year's total. Up-front costs in the first quarter totaled approximately $0.01 of earnings per share.

Cash flow, defined as cash from operating activities less capital expenditures, was $289 million in the first quarter, greater than the amount generated in the first quarter of 2006. The Company remained focused on working capital in the first quarter. Good performance in accounts payable and inventory management contributed to the improvement in cash flow.

Kellogg Expresses Increased Confidence and Again Raises Guidance for the Full Year

Kellogg now expects full-year earnings to be in a range of $2.70-2.74 per share. This results from the Company's first quarter performance and its increased confidence regarding performance for the remainder of the year. The Company continues to expect that full-year cash flow will be in a range between $950 million and $1.025 billion. The Company also expects that internal sales and operating profit will increase at a mid single-digit rate for the full year.

Mr. Mackay concluded, "Our first quarter results were positive and they have increased our already high levels of confidence. We continue to expect that we will post another strong year and our current momentum provides us with the opportunity to invest even more in future growth. Our 26,000 employees around the world remain committed to our operating principles, our business model, and our strategy, as they proved in the first quarter."

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, fruit snacks, frozen waffles, and veggie foods. The Company's brands include Kellogg's, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Rice Krispies, Murray, Morningstar Farms, Austin, 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

The Kellogg Company logo is available at

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. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them.

 Kellogg Company and Subsidiaries
 (millions, except per share data)
                                                   Quarter ended
                                                March 31,    April 1,
 (Results are unaudited)                          2007         2006

 Net sales                                       $2,963       $2,727

 Cost of goods sold                               1,699        1,530
 Selling, general, and administrative expense       765          724

 Operating profit                                   499          473

 Interest expense                                    78           75
 Other income (expense), net                          2            5

 Earnings before income taxes                       423          403
 Income taxes                                       102          129

 Net earnings                                    $  321       $  274

 Net earnings per share:
       Basic                                     $  .81       $  .69
       Diluted                                   $  .80       $  .68

 Dividends per share                             $.2910       $.2775

 Average shares outstanding:
       Basic                                        398          399
       Diluted                                      401          402

 Actual shares outstanding at period end            397          393

 Kellogg Company and Subsidiaries
                                                   Quarter ended
                                                March 31,   April 1,
 (Results are unaudited)                          2007        2006

 Net sales
   North America                                $ 2,002    $ 1,865
   Europe                                           574        490
   Latin America                                    229        215
   Asia Pacific (a)                                 158        157
   Consolidated                                 $ 2,963    $ 2,727


 Operating profit
   North America                                $   361    $   352
   Europe                                           108         84
   Latin America                                     47         55
   Asia Pacific (a)                                  27         25
   Corporate                                        (44)       (43)
   Consolidated                                 $   499    $   473

 (a) Includes Australia, Asia and South Africa

 Kellogg Company and Subsidiaries
                                             Year-to-date period ended
                                                March 31,   April 1,
 (unaudited)                                      2007        2006

 Operating activities
 Net earnings                                    $  321      $  274
 Adjustments to reconcile net earnings
  to operating cash flows:
   Depreciation and amortization                     87          81
   Deferred income taxes                            (33)         (9)
   Other (a)                                         28          47
 Postretirement benefit plan contributions          (30)        (25)
 Changes in operating assets and liabilities        (18)       (204)

 Net cash provided by operating activities          355         164

 Investing activities
 Additions to properties                            (66)        (63)

 Net cash used in investing activities              (66)        (63)

 Financing activities
 Net issuances of notes payable                     418         587
 Reductions of long-term debt                      (728)         --
 Issuances of common stock                           62          38
 Common stock repurchases                          (114)       (580)
 Cash dividends                                    (116)       (109)
 Other                                                4           2

 Net cash used in financing activities             (474)        (62)

 Effect of exchange rate changes on cash             10           3

 Increase (decrease) in cash and
  cash equivalents                                 (175)         42
 Cash and cash equivalents at beginning
  of period                                         411         219

 Cash and cash equivalents at end of period      $  236      $  261

 Supplemental Financial Data:

 Cash Flow (operating cash flow less
  property additions)(b)                         $  289      $  101
 (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

 Kellogg Company and Subsidiaries
 (millions, except per share data)            March 31,    December 30,
                                                 2007         2006
                                             (unaudited)        *

 Current assets
 Cash and cash equivalents                     $    236      $    411
 Accounts receivable, net                         1,147           945
     Raw materials and supplies                     206           201
     Finished goods and materials in process        573           623
 Deferred income taxes                              114           116
 Other prepaid assets                               121           131
 Total current assets                             2,397         2,427

 Property, net of accumulated depreciation
  of $4,186 and $4,102                            2,799         2,816
 Goodwill                                         3,448         3,448
 Other intangibles, net of accumulated
  amortization of $49 and $49                     1,420         1,420
 Pension                                            376           353
 Other assets                                       245           250
 Total assets                                  $ 10,685      $ 10,714

 Current liabilities
 Current maturities of long-term debt          $      2      $    723
 Notes payable                                    1,688         1,268
 Accounts payable                                   942           910
 Accrued advertising and promotion                  397           338
 Accrued income taxes                               153           152
 Accrued salaries and wages                         181           311
 Other current liabilities                          353           318
 Total current liabilities                        3,716         4,020

 Long-term debt                                   3,052         3,053
 Deferred income taxes                              599           619
 Other liabilities                                1,043           953

 Shareholders' equity
 Common stock, $.25 par value                       105           105
 Capital in excess of par value                     312           292
 Retained earnings                                3,831         3,630
 Treasury stock, at cost                           (949)         (912)
 Accumulated other comprehensive income (loss)   (1,024)       (1,046)
 Total shareholders' equity                       2,275         2,069

 Total liabilities and shareholders' equity    $ 10,685      $ 10,714
 * Condensed from audited financial statements.

SOURCE: Kellogg Company

Kellogg Company
          Analyst/Media Contact:
          Simon D. Burton, CFA
          (269) 961-6636