Kellogg Company Posts Solid First Quarter 2010 Results Including Double-Digit Operating Profit and EPS Growth; Affirms 2010 Guidance; Announces Three-Year $2.5 Billion Share Repurchase Program

xls Q1 2010 Financials converted to Excel

BATTLE CREEK, Mich. – Kellogg Company (NYSE: K) today reported solid first quarter 2010 growth in internal net sales, as well as robust internal operating profit and currency-neutral earnings per share growth. The strong operating profit performance was driven by continued focus on cost savings, moderating inflation costs, and timing of advertising expenditures.

First quarter net earnings were $418 million, a 30 percent increase over the first quarter a year ago. First quarter reported earnings per diluted share were $1.09, a 30 percent increase on a reported basis and a 27 percent increase on a currency-neutral basis.

First quarter reported net sales increased 5 percent to $3.3 billion. Internal net sales growth, which excludes the effects of foreign currency translation, rose 2 percent. Total operating profit for the first quarter 2010 grew 20 percent on a reported basis to $637 million, and internal operating profit increased 17 percent. Reported gross margin expanded 190 basis points to 43.0 percent in the quarter.

“We are pleased with our first quarter 2010 performance and are off to a positive start to the year,” said David Mackay, Kellogg Company’s chief executive officer. “By remaining focused on our business model and strategy, we delivered solid results during the first quarter despite facing anticipated pressure to our top-line.”

North America
Kellogg North America posted first quarter reported net sales growth of 3 percent; internal net sales growth was 2 percent. North America Retail Cereal delivered internal net sales growth of approximately half of a percent for the quarter reflecting increased competition in the cereal category and the lapping of a strong first quarter in 2009. Retail Snacks posted internal net sales growth of 5 percent, reflecting positive growth in all categories. The North America Frozen and Specialty Channels businesses posted an internal net sales decline of 3 percent, primarily a result of the Eggo supply disruption.

North America operating profit rose 23 percent on a reported basis, and 22 percent on an internal basis. The increase is attributed to solid sales growth combined with robust gross margin expansion and shifts in the timing of reinvestment in our business.

International
Kellogg International posted a first quarter 2010 reported net sales increase of 9 percent. On an internal basis, net sales growth for Kellogg International was 2 percent, excluding the effects of currency translation. First quarter internal net sales growth in Europe was 2 percent. Latin America internal net sales increased 1 percent as the strong performance in Mexico was muted by the impact of excessive rains which caused extensive water damage to our manufacturing facility resulting in a supply disruption in Brazil during the first quarter. Asia Pacific internal net sales rose 1 percent, compared to a double-digit increase in the same period a year earlier.

First quarter 2010 Kellogg International operating profit increased 9 percent on a reported basis. Operating profit grew 3 percent on an internal basis due to solid sales growth and improved gross margin, partially offset by increased advertising expenditures.

Interest and Tax
In the first quarter 2010, Kellogg’s interest expense totaled $65 million, an improvement over last year as a result of lower debt. Discrete tax benefits lowered the first quarter effective tax rate to 27.2 percent.

Cash flow
Cash flow, defined as cash from operating activities less capital expenditures, was $190 million for the quarter.

Kellogg Affirms 2010 Guidance
Kellogg continues to be well positioned to drive sustainable and dependable performance. The Company affirmed its previous 2010 guidance for full-year earnings per share growth on a currency-neutral basis to be in the range of 11 to 13 percent. 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 of 8 to 10 percent, above its long-term annual targets. Up-front costs for full-year 2010 are still expected to be approximately $0.16 per share. 

Kellogg also announced the Kellogg Company Board of Directors authorized a $2.5 billion three-year share repurchase program from 2010 through 2012, reinforcing its commitment to returning cash to shareholders. This authorization replaces the previously announced outstanding share buyback program.

CEO Mackay concluded, “For 2010, we will focus on improving top-line growth, continuing to implement our cost savings initiatives and reinvesting back in our business through increased brand building and additional productivity initiatives. Our strong start to 2010 increases our visibility for another year of sustainable and dependable performance.”

Conference Call / Webcast
Kellogg will host a conference call to discuss these results on April 29, 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.

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
                                 April    April
                                   3,      4,

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

  Net sales                      $3,318  $3,169

  Cost of goods sold              1,893   1,867

  Selling, general and
   administrative expense           788     773
  ----------------------------  -------  ------

  Operating profit                  637     529

  Interest expense                   65      67

  Other income (expense), net         1      --
  ----------------------------  -------  ------

  Income before income taxes        573     462

  Income taxes                      156     143
  ----------------------------  -------  ------

  Net income                       $417    $319
  ----------------------------  -------  ------

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

  Net income attributable to
   Kellogg Company                 $418    $321
  ----------------------------  -------  ------

  Per share amounts:
   Basic                          $1.10    $.84
   Diluted                        $1.09    $.84


  Dividends per share            $.3750  $.3400
  ----------------------------  -------  ------

  Average shares outstanding:

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

   Diluted                          384     383
  ----------------------------  -------  ------


  Actual shares outstanding at
   period end                       380     382
  ----------------------------  -------  ------


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

  Kellogg Company and Subsidiaries
  SELECTED OPERATING SEGMENT DATA


  ------------------------------------
                        Quarter ended
                        April    April
  (millions)              3,      4,

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

  Net sales
   North America        $2,275  $2,211
   Europe                  606     557
   Latin America           222     230

   Asia Pacific (a)        215     171
  -------------------  -------  ------

   Consolidated         $3,318  $3,169
  -------------------  -------  ------


  Segment operating
   profit
   North America          $495    $403
   Europe                  105      95
   Latin America            45      49
   Asia Pacific (a)         37      25

   Corporate              (45)    (43)
  -------------------  -------  ------

   Consolidated           $637    $529
  -------------------  -------  ------


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

  (a) Includes
   Australia, Asia
   and South Africa.

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


  ---------------------------------------------------
                                        Quarter ended
                                        April   April
                                          3,     4,

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

  Operating activities
  Net income                              $417   $319
  Adjustments to reconcile net income
   to operating cash flows:
   Depreciation and amortization            87     84
   Deferred income taxes                  (11)   (31)
   Other                                    44     21
  Postretirement benefit plan
   contributions                          (22)   (74)

  Changes in operating assets and
   liabilities                           (265)   (74)
  -----------------------------------  -------  -----


  Net cash provided by operating
   activities                              250    245
  -----------------------------------  -------  -----

  Investing activities
  Additions to properties                 (60)   (73)

  Other                                      1     --
  -----------------------------------  -------  -----


  Net cash used in investing
   activities                             (59)   (73)
  -----------------------------------  -------  -----

  Financing activities
  Net issuances of notes payable            80      2
  Reductions of long-term debt              --    (1)
  Net issuances of common stock             74      7
  Common stock repurchases               (148)     --
  Cash dividends                         (142)  (130)

  Other                                      2      2
  -----------------------------------  -------  -----


  Net cash used in financing
   activities                            (134)  (120)
  -----------------------------------  -------  -----


  Effect of exchange rate changes on
   cash and cash equivalents               (4)    (3)
  -----------------------------------  -------  -----

  Increase in cash and cash
   equivalents                              53     49

  Cash and cash equivalents at
   beginning of period                     334    255
  -----------------------------------  -------  -----


  Cash and cash equivalents at end of
   period                                 $387   $304
  -----------------------------------  -------  -----



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

  Cash Flow (operating cash flow less
   property additions) (a)                $190   $172
  -----------------------------------  -------  -----

  (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
                                  April 3,       2,
                                    2010       2010

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

  Current assets
  Cash and cash equivalents             $387     $334
  Accounts receivable, net             1,284    1,093
  Inventories:
   Raw materials and supplies            226      214
   Finished goods and materials
    in process                           591      696
  Deferred income taxes                  127      128

  Other prepaid assets                   139       93
  -----------------------------  -----------  -------

  Total current assets                 2,754    2,558

  Property, net of accumulated
   depreciation
   of $4,508 and $4,520                2,977    3,010
  Goodwill                             3,645    3,643
  Other intangibles, net of
   accumulated amortization
   of $45 and $45                      1,458    1,458
  Pension                                175      160

  Other assets                           380      371
  -----------------------------  -----------  -------


  Total assets                       $11,389  $11,200
  -----------------------------  -----------  -------

  Current liabilities
  Current maturities of
   long-term debt                       $948       $1
  Notes payable                          128       44
  Accounts payable                     1,028    1,077
  Accrued advertising and
   promotion                             442      409
  Accrued income taxes                   142       33
  Accrued salaries and wages             189      322

  Other current liabilities              352      402
  -----------------------------  -----------  -------

  Total current liabilities            3,229    2,288

  Long-term debt                       3,898    4,835
  Deferred income taxes                  439      425
  Pension liability                      431      430
  Other liabilities                      951      947

  Commitments and contingencies

  Equity
  Common stock, $.25 par value           105      105
  Capital in excess of par
   value                                 480      472
  Retained earnings                    5,750    5,481
  Treasury stock, at cost            (1,885)  (1,820)

  Accumulated other
   comprehensive income (loss)       (2,011)  (1,966)
  -----------------------------  -----------  -------

  Total Kellogg Company equity         2,439    2,272


  Noncontrolling interests                 2        3
  -----------------------------  -----------  -------


  Total equity                         2,441    2,275
  -----------------------------  -----------  -------


  Total liabilities and equity       $11,389  $11,200
  -----------------------------  -----------  -------
  * Condensed from audited
   financial statements.

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


   First quarter of 2010 versus 2009
  -------------------------------------------------------------------------------------------

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

  2010 net sales                  $ 2,275    $ 606    $ 222    $ 215       $ --       $ 3,318
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  2009 net sales                  $ 2,211    $ 557    $ 230    $ 171       $ --       $ 3,169
  ----------------------------  ---------  -------  -------  -------  ---------  ------------
  % change - 2010 vs. 2009:
   Volume (tonnage) (b)               .9%     1.4%     -.9%    -4.8%         --           .5%

   Pricing/mix                        .9%      .8%     2.3%     5.9%         --          1.3%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------
  Subtotal - internal business       1.8%     2.2%     1.4%     1.1%         --          1.8%

   Foreign currency impact           1.1%     6.6%    -4.7%    24.4%         --          2.9%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  Total change                       2.9%     8.8%    -3.3%    25.5%         --          4.7%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------



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

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

  2010 operating profit             $ 495    $ 105     $ 45     $ 37     $ (45)         $ 637
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  2009 operating profit             $ 403     $ 95     $ 49     $ 25     $ (43)         $ 529
  ----------------------------  ---------  -------  -------  -------  ---------  ------------
  % change - 2010 vs. 2009:
   Internal business                21.6%     4.1%      .6%     9.9%      -2.8%         17.5%

   Foreign currency impact           1.4%     5.8%    -9.5%    33.9%         --          2.9%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  Total change                      23.0%     9.9%    -8.9%    43.8%      -2.8%         20.4%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  (a) Includes Australia, Asia, and South
   Africa.
  (b) We measure the volume impact (tonnage) on revenues based on the stated
   weight of our product shipments.

  Kellogg Company and Subsidiaries
  Up-Front Costs*
  $ millions


                      Quarter ended April 3, 2010
                     ------------------------------

                                 Selling,
                     Cost of   general and
                      goods   administrative
                      sold       expense      Total
  -----------------  -------  --------------  -----
  2010
   North America         $ 7             $ 4   $ 11
   Europe                  3               1      4
   Latin America          --              --     --
   Asia Pacific            1               1      2

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

    Total               $ 11             $ 6   $ 17
  -----------------  -------  --------------  -----


                      Quarter ended April 4, 2009
                     ------------------------------

                                 Selling,
                     Cost of   general and
                      goods   administrative
                      sold       expense      Total
  -----------------  -------  --------------  -----
  2009
   North America        $ 17            $ --   $ 17
   Europe                  1              --      1
   Latin America           1              --      1
   Asia Pacific           --              --     --

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

    Total               $ 19            $ --   $ 19
  -----------------  -------  --------------  -----


  -----------------  -------  --------------  -----
  2010 Variance -
   better(worse)
   than 2009
   North America        $ 10           $ (4)    $ 6
   Europe                (2)             (1)    (3)
   Latin America           1              --      1
   Asia Pacific          (1)             (1)    (2)

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

    Total                $ 8           $ (6)    $ 2
  -----------------  -------  --------------  -----

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

SOURCE: Kellogg Company

CONTACTS: Kellogg Company

Analyst Contact: Kathryn Koessel (269) 961-9089

Media Contact: Kris Charles (269) 961-3799