Kellogg Announces Strong 2009 Earnings Results; Delivers Record Cash Flow; Raises 2010 Currency-Neutral EPS Guidance

xls Q4 2009 Financials converted to Excel
 

 

BATTLE CREEK, Mich., Feb 4, 2010 (GlobeNewswire via COMTEX News Network) -- Kellogg Company (NYSE:K) today announced solid operating profit growth for the full-year and fourth quarter 2009. Reported earnings for full-year 2009 were $1.2 billion, or $3.16 per diluted share, an increase of 6 percent from full-year 2008 of $1.1 billion, or $2.99 per diluted share which included a 53rd week in the fourth quarter of 2008. On a currency neutral basis, full-year 2009 earnings per share grew 13 percent. Reported earnings in the fourth quarter of 2009 were $176 million, or $0.46 per diluted share, compared with $179 million, or $0.47 per diluted share in the fourth quarter of 2008.

"We continued our momentum in 2009, delivering another year of growth despite facing one of the most challenging economic environments in decades," said David Mackay, the Kellogg Company's chief executive officer. "We maintained our focus on building and strengthening our core business, while successfully completing the first year of our three-year billion dollar plus cost reduction challenge."

Full-Year Results

Full-year 2009 reported net sales were $12.6 billion, a 2 percent decline compared with the year earlier which includes currency impact and a 53rd week in the fourth quarter of 2008. However, internal net sales increased 3 percent year-over-year. For the same period, operating profit increased 2 percent to $2.0 billion on a reported basis and grew 10 percent on an internal basis. As anticipated, 2009 up-front costs associated with the cost reduction initiatives totaled $0.26 per share. 2009 reported gross margin expanded 100 basis points year-over-year to 42.9 percent as continued cost management and positive price and mix more than offset increased cost pressures.

Fourth Quarter Results

During the fourth quarter 2009, reported net sales declined 1 percent to $2.9 billion compared with the fourth quarter in 2008 which included currency impact and a 53rd week. Over the same period, internal net sales increased 2 percent. Compared to the fourth quarter a year ago, reported operating profit rose 2 percent to $352 million, and increased a solid 10 percent on an internal basis. Reported gross margin for the quarter improved 350 basis points as continued cost management and positive price and mix more than offset increased cost pressures.

North America

Kellogg North America posted a year-over-year 2009 full-year reported net sales increase of 1 percent to $8.5 billion, while internal net sales grew 3 percent. On an internal basis for the full-year 2009 compared to a year earlier, North America Retail Cereal posted positive net sales growth of 4 percent, and North America Retail Snacks' net sales increased by 3 percent. North America Frozen and Specialty Channels full-year internal net sales declined 1 percent as a result of challenging industry trends in the food service business and supply disruptions of Eggo® waffles. Top-line growth combined with the positive impact of the three-year billion dollar plus cost savings program contributed to full-year 2009 North America operating profit of $1.6 billion, an 8 percent increase on a reported basis, and double-digit growth of 11 percent on an internal basis.

Fourth quarter 2009 Kellogg North America's net sales of $1.9 billion fell 4 percent on a reported basis compared to the same period in 2008 primarily due to the impact of the 53rd week in the fourth quarter of 2009, but rose 2 percent on an internal basis. Operating profit for the fourth quarter 2009 of $325 million improved 15 percent year-over-year on a reported basis, and grew a robust 25 percent on an internal basis. The increase is attributed to both sales growth and cost savings.

International

Kellogg International posted a full-year 2009 reported net sales decline of 7 percent year-over-year to $4.1 billion. However, on an internal basis, net sales gained 3 percent. Compared with the year earlier, full-year 2009 internal net sales in Europe increased approximately 2 percent. Latin America internal net sales grew 7 percent, and Asia Pacific internal net sales rose 5 percent. Reported 2009 operating profit for the Kellogg International business declined by 12 percent compared with 2008. On an internal basis, operating profit rose mid-single digits to 5 percent driven by sales growth.

Fourth quarter 2009 Kellogg International sales increased by 6 percent on a reported basis to $964 million compared with the same quarter in 2008, while internal sales increased by 2 percent. International operating profit for the fourth quarter 2009 decreased by 23 percent on a reported basis and declined by 23 percent on an internal basis driven by increased advertising spending, higher up-front costs, and timing of overhead.

Interest and Tax

In 2009, Kellogg's interest expense totaled $295 million which included the cost associated with the bond tender offer completed in December 2009. The reported 2009 tax rate was 28.2 percent, primarily reflecting some discrete favorable tax items.

Cash flow

In 2009, Kellogg delivered record cash flow, defined as cash from operating activities less capital expenditures, generating $1.27 billion for the year. By comparison in 2008, the Company generated $806 million in cash flow including a discretionary pension contribution. Capital expenditures totaled $377 million during 2009.

Kellogg Raised Currency-Neutral 2010 Guidance

Kellogg raised its 2010 guidance for full-year earnings per share growth on a currency-neutral basis to be in the range of 11 to 13 percent. Assuming no foreign exchange impact, this implies earnings per share of $3.51 to $3.57. The Company reaffirmed its 2 to 3 percent 2010 internal net sales growth guidance, in line with long-term targets. The Company also reiterated its 2010 internal operating profit growth guidance in the high single-digit range, above its long-term annual targets. Up-front costs for full-year 2010 are expected to be approximately $0.16 per share, a decrease from $0.26 per share in 2009, positively impacting operating profit and net earnings.

CEO Mackay concluded, "We enter 2010 with confidence in hitting our growth expectations, driving solid top-line growth, investing in our brands as well as implementing further cost-savings initiatives through our three-year billion dollar plus cost savings challenge. With excellent financial visibility, we remain confident in our ability to deliver long-term sustainable, dependable performance."

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on February 4, 2010 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 888-465-4043 in the U.S., and 201-604-5146 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is available at http://investor.kelloggs.com.

About Kellogg Company

With 2009 sales of nearly $13 billion, Kellogg Company is the world's leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles, and veggie foods. The Company's brands include Kellogg's®, Keebler®, Pop-Tarts®, Eggo®, Cheez-It®, Nutri-Grain®, Rice Krispies®, BearNaked®, Morningstar Farms®, Famous Amos®, Special K®, All-Bran®, Frosted Mini-Wheats®, Club® and Kashi®. Kellogg products are manufactured in 18 countries and marketed in more than 180 countries around the world. For more information, visit the Kellogg Company web site at http://www.kelloggcompany.com.

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

Forward-Looking Statements Disclosure

This news release contains, or incorporates by reference, "forward-looking statements" with projections concerning, among other things, the Company's strategy, and the Company's sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words "expects," "believes," "should," "will," "will deliver," "anticipates," "projects," "estimates," or words or phrases of similar meaning.

The Company's actual results or activities may differ materially from these predictions. The Company's future results could also be affected by a variety of factors, including the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; labor costs; 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 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 publicly update them.

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


  -----------------------------------------------------------------
                                 Quarter ended       Year ended
                                January  January   January  January
                                   2,       3,       2,        3,

  (Results are unaudited)        2010     2009      2010     2009
  ----------------------------  -------  -------  --------  -------

  Net sales                      $2,900   $2,933   $12,575  $12,822

  Cost of goods sold              1,655    1,777     7,184    7,455

  Selling, general and
   administrative expense           893      811     3,390    3,414
  ----------------------------  -------  -------  --------  -------

  Operating profit                  352      345     2,001    1,953

  Interest expense                   96       78       295      308

  Other income (expense), net      (21)      (7)      (22)     (14)
  ----------------------------  -------  -------  --------  -------

  Income before income taxes        235      260     1,684    1,631
  Income taxes                       60       82       476      485

  Earnings from joint ventures        1       --        --       --
  ----------------------------  -------  -------  --------  -------

  Net income                       $176     $178    $1,208   $1,146
  ----------------------------  -------  -------  --------  -------

  Net loss attributable to
   noncontrolling interests          --      (1)       (4)      (2)
  ----------------------------  -------  -------  --------  -------

  Net income attributable to
   Kellogg Company                 $176     $179    $1,212    1,148
  ----------------------------  -------  -------  --------  -------

  Per share amounts:
   Basic                           $.46     $.47     $3.17    $3.01
   Diluted                         $.46     $.47     $3.16    $2.99


  Dividends per share             $.375    $.340    $1.430   $1.300
  ----------------------------  -------  -------  --------  -------

  Average shares outstanding:

   Basic                            380      382       382      382
                                -------  -------  --------  -------

   Diluted                          384      384       384      385
                                -------  -------  --------  -------


  Actual shares outstanding at
   year end                                            381      382
  ----------------------------  -------  -------  --------  -------


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

  Kellogg Company and Subsidiaries
  SELECTED OPERATING SEGMENT DATA


  -------------------------------------------------------
                       Quarter ended       Year ended
                      January  January   January  January
  (millions)             2,       3,       2,        3,

  (Results are
   unaudited)          2010     2009      2010     2009
  ------------------  -------  -------  --------  -------

  Net sales
   North America       $1,936   $2,026    $8,510   $8,457
   Europe                 556      530     2,361    2,619
   Latin America          213      217       963    1,030

   Asia Pacific (a)       195      160       741      716
                      -------  -------  --------  -------

   Consolidated        $2,900   $2,933   $12,575  $12,822
                      -------  -------  --------  -------


  Segment operating
   profit
   North America         $325     $284    $1,569   $1,447
   Europe                  44       43       348      390
   Latin America           22       43       179      209
   Asia Pacific (a)        12       13        86       92

   Corporate             (51)     (38)     (181)    (185)
                      -------  -------  --------  -------

   Consolidated          $352     $345    $2,001   $1,953
                      -------  -------  --------  -------


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

  (a) Includes Australia, Asia and South Africa.

  Kellogg Company and Subsidiaries
  CONSOLIDATED STATEMENT OF CASH FLOWS
  (millions)


  ----------------------------------------------------
                                         Year ended
                                      January  January
                                         2,       3,

  (unaudited)                          2010     2009
  ----------------------------------  -------  -------

  Operating activities
  Net income                           $1,208   $1,146
  Adjustments to reconcile net
   income to operating cash flows:
   Depreciation and amortization          384      375
   Deferred income taxes                 (40)      157
   Other                                   13      121
  Postretirement benefit plan
   contributions                        (100)    (451)
  Changes in operating assets and
   liabilities                            178     (81)
  ----------------------------------  -------  -------

  Net cash provided by operating
   activities                           1,643    1,267
  ----------------------------------  -------  -------

  Investing activities
  Additions to properties               (377)    (461)
  Acquisitions of businesses, net of
   cash acquired                           --    (213)
  Other                                     7      (7)
  ----------------------------------  -------  -------

  Net cash used in investing
   activities                           (370)    (681)
  ----------------------------------  -------  -------

  Financing activities
  Net issuances (reductions) of
   notes payable                      (1,344)    (103)
  Issuances of long-term debt           1,241      756
  Reductions of long-term debt          (482)    (468)
  Issuances of common stock               131      175
  Common stock repurchases              (187)    (650)
  Cash dividends                        (546)    (495)
  Other                                     5        5
  ----------------------------------  -------  -------

  Net cash used in financing
   activities                         (1,182)    (780)
  ----------------------------------  -------  -------

  Effect of exchange rate changes on
   cash                                  (12)     (75)
  ----------------------------------  -------  -------

  Increase (decrease) in cash and
   cash equivalents                        79    (269)
  Cash and cash equivalents at
   beginning of period                    255      524
  ----------------------------------  -------  -------


  Cash and cash equivalents at end
   of period                             $334     $255
  ----------------------------------  -------  -------



  ----------------------------------  -------  -------
  Supplemental Financial Data:

  Cash Flow (operating cash flow
   less property additions) (a)        $1,266     $806


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

  (a) We use this non-GAAP measure of cash flow to focus management and
   investors on the amount of cash available for debt reduction,
   dividend distributions, acquisition opportunities, and share
   repurchase.

  Kellogg Company and Subsidiaries
  CONSOLIDATED BALANCE SHEET
  (millions, except per share data)


  ---------------------------------------------------
                                              January
                                  January 2,     3,
                                    2010       2009

                                 (unaudited)     *
  -----------------------------  -----------  -------

  Current assets
  Cash and cash equivalents             $334     $255
  Accounts receivable, net             1,093    1,100
  Inventories:
   Raw materials and supplies            214      203
   Finished goods and materials
    in process                           696      694
  Deferred income taxes                  128      112
  Other prepaid assets                    93      157
  -----------------------------  -----------  -------

  Total current assets                 2,558    2,521

  Property, net of accumulated
   depreciation of $4,520 and
   $4,171                              3,010    2,933
  Goodwill                             3,643    3,637
  Other intangibles, net of
   accumulated amortization of
   $45 and $42                         1,458    1,461
  Pension                                160       96
  Other assets                           371      298
  -----------------------------  -----------  -------


  Total assets                       $11,200  $10,946
  -----------------------------  -----------  -------

  Current liabilities
  Current maturities of
   long-term debt                         $1       $1
  Notes payable                           44    1,387
  Accounts payable                     1,077    1,135
  Accrued advertising and
   promotion                             409      357
  Accrued income taxes                    33       51
  Accrued salaries and wages             322      280
  Other current liabilities              402      341
  -----------------------------  -----------  -------

  Total current liabilities            2,288    3,552

  Long-term debt                       4,835    4,068
  Deferred income taxes                  425      300
  Pension liability                      430      631
  Other liabilities                      947      940

  Commitments and contingencies

  Equity
  Common stock, $.25 par value           105      105
  Capital in excess of par
   value                                 472      438
  Retained earnings                    5,481    4,836
  Treasury stock, at cost            (1,820)  (1,790)

  Accumulated other
   comprehensive income (loss)       (1,966)  (2,141)
  -----------------------------  -----------  -------

  Total Kellogg Company equity         2,272    1,448


  Noncontrolling interests                 3        7
  -----------------------------  -----------  -------

  Total equity                         2,275    1,455
  -----------------------------  -----------  -------


  Total liabilities and equity       $11,200  $10,946
  -----------------------------  -----------  -------
  * Condensed from audited financial statements.

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


  Fourth quarter of 2009 versus 2008
  ----------------------------------------------------------------------------------------

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

  2009 net sales                 $1,936    $556     $213     $195        $--        $2,900
  ----------------------------  -------  ------  -------  -------  ---------  ------------

  2008 net sales                 $2,026    $530     $217     $160        $--        $2,933
  ----------------------------  -------  ------  -------  -------  ---------  ------------
  % change - 2009 vs. 2008:
   Volume (tonnage) (b)            -.2%    -.7%    -5.7%    -9.0%         --         -1.4%

   Pricing/mix                     2.2%    3.0%     5.8%    11.0%         --          3.3%
                                -------  ------  -------  -------  ---------  ------------
  Subtotal - internal business     2.0%    2.3%      .1%     2.0%         --          1.9%
   Shipping day differences
    (c)                           -7.5%   -5.6%    -2.4%    -3.9%         --         -6.6%

   Foreign currency impact         1.0%    8.5%       --    23.9%         --          3.6%
                                -------  ------  -------  -------  ---------  ------------

  Total change                    -4.5%    5.2%    -2.3%    22.0%         --         -1.1%
  ----------------------------  -------  ------  -------  -------  ---------  ------------



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

  2009 operating profit            $325     $44      $22      $12      $(51)          $352
  ----------------------------  -------  ------  -------  -------  ---------  ------------

  2008 operating profit            $284     $43      $43      $13      $(38)          $345
  ----------------------------  -------  ------  -------  -------  ---------  ------------
  % change - 2009 vs. 2008:
   Internal business              24.7%   12.7%   -51.7%   -21.0%     -47.9%          9.7%
   Shipping day differences
    (c)                          -12.0%  -11.7%     4.4%    -5.4%       9.1%        -10.0%

   Foreign currency impact         1.9%    2.0%      .1%    22.9%         --          2.6%
                                -------  ------  -------  -------  ---------  ------------

  Total change                    14.6%    3.0%   -47.2%    -3.5%     -38.8%          2.3%
  ----------------------------  -------  ------  -------  -------  ---------  ------------

  (a) Includes Australia, Asia, and South Africa.
  (b) We measure the volume impact (tonnage) on revenues based on the stated weight of our
   product shipments.
  (c)  Impact of 53rd week in 2008.

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


  Year ended 2009 versus 2008
  -----------------------------------------------------------------------------------------

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

  2009 net sales                 $8,510   $2,361     $963     $741        $--       $12,575
  ----------------------------  -------  -------  -------  -------  ---------  ------------

  2008 net sales                 $8,457   $2,619   $1,030     $716        $--       $12,822
  ----------------------------  -------  -------  -------  -------  ---------  ------------
  % change - 2009 vs. 2008:

   Volume (tonnage) (b)            -.7%    -1.6%     1.2%    -1.3%         --          -.7%
                                -------  -------  -------  -------  ---------  ------------

   Pricing/mix                     3.5%     3.2%     5.6%     6.3%         --          3.7%
                                -------  -------  -------  -------  ---------  ------------
  Subtotal - internal business     2.8%     1.6%     6.8%     5.0%         --          3.0%
   Acquisitions (c)                 .1%      .3%       --     3.7%         --           .3%
   Shipping day differences
    (d)                           -1.8%    -1.1%     -.5%     -.9%         --         -1.5%

   Foreign currency impact         -.5%   -10.6%   -12.9%    -4.3%         --         -3.7%
                                -------  -------  -------  -------  ---------  ------------

  Total change                      .6%    -9.8%    -6.6%     3.5%         --         -1.9%
  ----------------------------  -------  -------  -------  -------  ---------  ------------



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

  2009 operating profit          $1,569     $348     $179      $86     $(181)        $2,001
  ----------------------------  -------  -------  -------  -------  ---------  ------------

  2008 operating profit          $1,447     $390     $209      $92     $(185)        $1,953
  ----------------------------  -------  -------  -------  -------  ---------  ------------
  % change - 2009 vs. 2008:
   Internal business              11.4%     7.0%    -2.0%    13.5%         --         10.3%
   Acquisitions (c)                  --       --       --    -8.4%         --          -.4%
   Shipping day differences
    (d)                           -2.4%    -1.3%      .9%     -.8%       1.8%         -1.8%

   Foreign currency impact         -.5%   -16.5%   -13.1%   -10.5%         --         -5.6%
                                -------  -------  -------  -------  ---------  ------------

  Total change                     8.5%   -10.8%   -14.2%    -6.2%       1.8%          2.5%
  ----------------------------  -------  -------  -------  -------  ---------  ------------

  (a) Includes Australia, Asia, and South
   Africa.
  (b) We measure the volume impact (tonnage) on revenues based on the stated weight of our
   product shipments.
  (c) Impact of results for the year-to-date period ended January 2, 2010 from the
   acquisitions of United Bakers, Navigable Foods, Specialty Cereal and certain assets and
   liabilities of IndyBake.
  (d) Impact of 53rd week in 2008.

  Kellogg Company and Subsidiaries
  Up-Front Costs*
  $ millions


                      Quarter ended January 2, 2010    Year ended January 2, 2010
                     ------------------------------  ------------------------------

                     Cost of     Selling,                        Selling,
                               general and           Cost of   general and
                      goods   administrative          goods   administrative
                      sold       expense      Total   sold       expense      Total
                     -------  --------------  -----  -------  --------------  -----
  2009
   North America          $6             $11    $17      $52             $23    $75
   Europe                  8              10     18       26              15     41
   Latin America           6               1      7       14               1     15
   Asia Pacific            3               1      4        6               1      7

   Corporate              --              --     --       --              --     --
                     -------  --------------  -----  -------  --------------  -----

     Total               $23             $23    $46      $98             $40   $138
                     -------  --------------  -----  -------  --------------  -----


                      Quarter ended January 3, 2009    Year ended January 3, 2009
                     ------------------------------  ------------------------------

                     Cost of     Selling,                        Selling,
                               general and           Cost of   general and
                      goods   administrative          goods   administrative
                      sold       expense      Total   sold       expense      Total
                     -------  --------------  -----  -------  --------------  -----
  2008
   North America         $12             $--    $12      $12              $2    $14
   Europe                 10              --     10       28              --     28
   Latin America           1               4      5       12               4     16
   Asia Pacific           --              --     --       --              --     --

   Corporate              --              --     --       --              17     17
                     -------  --------------  -----  -------  --------------  -----

     Total               $23              $4    $27      $52             $23    $75
                     -------  --------------  -----  -------  --------------  -----

  ---------------------------------------------------------------------------------
  2009 Variance - better(worse) than 2008
   North America          $6           $(11)   $(5)    $(40)           $(21)  $(61)
   Europe                  2            (10)    (8)        2            (15)   (13)
   Latin America         (5)               3    (2)      (2)               3      1
   Asia Pacific          (3)             (1)    (4)      (6)             (1)    (7)

   Corporate              --              --     --       --              17     17
                     -------  --------------  -----  -------  --------------  -----

     Total               $--           $(19)  $(19)    $(46)           $(17)  $(63)
                     -------  --------------  -----  -------  --------------  -----

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

CONTACTS: Kellogg Company

Analyst Contact:
Kathryn Koessel
(269) 961-9089

Media Contact:
Kris Charles
(269) 961-3799