Kellogg Company Reports Second Quarter 2010 Results; Adjusts 2010 EPS Guidance to 8 to 10 Percent

BATTLE CREEK, Mich., Jul 29, 2010 -- Kellogg Company (NYSE:K) today reported lower second quarter 2010 internal net sales, internal operating profit and currency-neutral earnings per share, reflecting weakness in the cereal category, lower Eggo sales, and the impact of the June 25 voluntary recall of select packages of breakfast cereals. The Company is reducing its 2010 internal net sales, internal operating profit, and currency-neutral earnings per share guidance.

Second quarter net earnings were $302 million, a 15 percent decline over the same quarter a year ago. Second quarter reported earnings per diluted share decreased 14 percent to $0.79 and decreased 11 percent on a currency-neutral basis. The estimated impact of the recall, including lost sales, reduced earnings per share by approximately $0.10 in the quarter and will reduce earnings per share by approximately $0.12 for the full year.

Reported net sales in the second quarter declined 5 percent to $3.1 billion. Internal net sales, excluding the effect of foreign currency translation, decreased 4 percent from the prior year. Total reported operating profit in the quarter decreased 13 percent to $483 million. Internal operating profit decreased 11 percent, driven primarily by the voluntary recall. Reported gross margin contracted 90 basis points to 42.6 percent in the quarter due to the impact of the recall.

"Our second quarter results reflect the deflationary environment in the cereal category, particularly in the U.S. and UK, softer Eggo sales, and the voluntary cereal recall," said David Mackay, Kellogg Company's chief executive officer. "The second quarter performance was weaker than expected, and we have lowered our full-year guidance to reflect the cost of the recall and the difficult business environment. However, we are anticipating a stronger back half driven by increased innovation, reinvestment in our business, and gradual improvement in category trends."

North America

Kellogg North America posted a second quarter net sales decline of 5 percent on a reported basis and a 6 percent decline on an internal basis. The decline was primarily driven by 13 percent lower North America Retail Cereal internal net sales reflecting continued weakness in the cereal category, the impact of the voluntary cereal recall, and a reduction in customer inventories. Strong performance in Pop-Tarts and the wholesome snacks categories contributed to Retail Snacks internal net sales growth of 1 percent. The North America Frozen and Specialty Channels businesses posted an internal net sales decline of 9 percent, as a result of softer Eggo sales as we began to recover from our previous supply disruption.

North America operating profit declined 15 percent on a reported basis and 16 percent on an internal basis. The voluntary cereal recall adversely impacted North America operating profit by 13 percent.

International

Kellogg International posted a 5 percent decline in second quarter 2010 reported net sales. On an internal basis, excluding the effects of currency translation, net sales for Kellogg International were flat. Second quarter internal net sales in Europe were down 3 percent primarily due to weakness in the U.K. cereal business and lower results in the Russia snacks business. Latin America internal net sales rose 5 percent, and Asia Pacific internal net sales grew 3 percent.

Kellogg International operating profit was 7 percent lower on a reported basis. Operating profit was flat on an internal basis due to flat internal net sales combined with a rise in advertising expenditures.

Interest and Tax

In the second quarter 2010, Kellogg's interest expense totaled $61 million, an improvement over the same quarter in 2009 as a result of lower debt. The second quarter effective tax rate was 29.7 percent.

Cash flow

Cash flow, defined as cash from operating activities less capital expenditures, was $446 million year-to-date. Reinforcing its commitment to returning cash to shareowners, Kellogg purchased $208 million of shares in the second quarter under its $2.5 billion three-year share repurchase authorization. For the first half of 2010, Kellogg repurchased $356 million of shares.

                      Kellogg Lowers 2010 Guidance


Kellogg continues to invest in its business to drive growth over the long term. Incorporating the challenges associated with the impact of the voluntary cereal recall and the current business environment, the Company lowered its 2010 guidance for full-year earnings per share growth on a currency-neutral basis to the range of 8 to 10 percent. The Company expects 2010 internal net sales growth to be in the flat to 1 percent range, and internal operating profit growth to be in the 4 to 6 percent range. Up-front costs for full-year 2010 are now expected to be approximately $0.12 per share compared with earlier estimates of $0.16 per share. Cash flow guidance was reduced to a range of $1.15 to $1.2 billion, in line with business results.

CEO Mackay concluded, "Our adjusted 2010 guidance reflects the challenges we faced in the first half as well as our commitment to reinvesting in our business for long-term sustainable growth. While the current environment remains challenging, our focus is on improving top-line growth, continuing to implement our cost savings and productivity initiatives, and reinvesting in our business. We remain committed to running the business the right way for the long term."

                        Conference Call / Webcast


Kellogg will host a conference call to discuss these results on July 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(R), Keebler(R), Pop-Tarts(R), Eggo(R), Cheez-It(R), Nutri-Grain(R), Rice Krispies(R), BearNaked(R), Morningstar Farms(R), Famous Amos(R), Special K(R), All-Bran(R), Frosted Mini-Wheats(R), Club(R) and Kashi(R). 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)


  -------------------------------------------------------------------
                                                  Year-to-date period
                                 Quarter ended          ended
                                          July                  July
                                July 3,    4,       July 3,      4,

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

  Net sales                      $3,062  $3,229        $6,380  $6,398

  Cost of goods sold              1,757   1,825         3,650   3,692

  Selling, general and
   administrative expense           822     851         1,610   1,624
  ----------------------------  -------  ------  ------------  ------

  Operating profit                  483     553         1,120   1,082

  Interest expense                   61      67           126     134

  Other income (expense), net         7       9             8       9
  ----------------------------  -------  ------  ------------  ------

  Income before income taxes        429     495         1,002     957
  Income taxes                      128     141           284     284

  Earnings (loss) from joint
   ventures                          --     (1)            --     (1)
  ----------------------------  -------  ------  ------------  ------

  Net income                       $301    $353          $718    $672
  ----------------------------  -------  ------  ------------  ------

  Net income (loss)
   attributable to
   noncontrolling interests         (1)     (1)           (2)     (3)
  ----------------------------  -------  ------  ------------  ------

  Net income attributable to
   Kellogg Company                 $302    $354          $720    $675
  ----------------------------  -------  ------  ------------  ------

  Per share amounts:
   Basic                           $.80    $.93         $1.89   $1.77
   Diluted                         $.79    $.92         $1.88   $1.76


  Dividends per share            $.3750  $.3400        $.7500  $.6800
  ----------------------------  -------  ------  ------------  ------

  Average shares outstanding:

   Basic                            381     383           380     382
  ----------------------------  -------  ------  ------------  ------

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


  Actual shares outstanding at
   period end                                             378     383
  ----------------------------  -------  ------  ------------  ------


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

  Kellogg Company and Subsidiaries
  SELECTED OPERATING SEGMENT DATA



  ----------------------------------------------------------
                                         Year-to-date period
                        Quarter ended          ended
                                 July                  July
  (millions)           July 3,    4,       July 3,      4,

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

  Net sales
   North America        $2,064  $2,176        $4,339  $4,387
   Europe                  560     617         1,166   1,174
   Latin America           240     258           462     488

   Asia Pacific (a)        198     178           413     349
  -------------------  -------  ------  ------------  ------

   Consolidated         $3,062  $3,229        $6,380  $6,398
  -------------------  -------  ------  ------------  ------


  Segment operating
   profit
   North America          $362    $426          $857    $829
   Europe                  100     104           205     199
   Latin America            47      57            92     106
   Asia Pacific (a)         20      21            57      46

   Corporate              (46)    (55)          (91)    (98)
  -------------------  -------  ------  ------------  ------

   Consolidated           $483    $553        $1,120  $1,082
  -------------------  -------  ------  ------------  ------


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

  (a) Includes Australia, Asia and South Africa.

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


  -------------------------------------------------------
                                      Year-to-date period
                                             ended
                                                     July
                                         July 3,     4,

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

  Operating activities
  Net income                                  $718   $672
  Adjustments to reconcile net
   income
  to operating cash flows:
   Depreciation and amortization               178    189
   Deferred income taxes                      (52)     30
   Other                                        73    (8)
  Postretirement benefit plan
   contributions                              (36)   (84)

  Changes in operating assets and
   liabilities                               (288)  (103)
  ----------------------------------  ------------  -----


  Net cash provided by operating
   activities                                  593    696
  ----------------------------------  ------------  -----

  Investing activities
  Additions to properties                    (147)  (161)

  Other                                          2      1
  ----------------------------------  ------------  -----


  Net cash used in investing
   activities                                (145)  (160)
  ----------------------------------  ------------  -----

  Financing activities
  Net issuances (reductions) of
   notes payable                               110  (882)
  Issuances of long-term debt                   --    745
  Reductions of long-term debt                 (1)     --
  Net issuances of common stock                148     18
  Common stock repurchases (a)               (266)     --
  Cash dividends                             (286)  (260)

  Other                                          6      2
  ----------------------------------  ------------  -----


  Net cash used in financing
   activities                                (289)  (377)
  ----------------------------------  ------------  -----


  Effect of exchange rate changes on
   cash and cash equivalents                  (22)     10
  ----------------------------------  ------------  -----

  Increase in cash and cash
   equivalents                                 137    169

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


  Cash and cash equivalents at end
   of period                                  $471   $424
  ----------------------------------  ------------  -----


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

  Cash Flow (operating cash flow
   less property additions) (b)               $446   $535


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

  (a) Common stock repurchases in the year-to-date period
   ended July 3, 2010 were $356; $90 million of these
   purchases were paid in the third quarter of 2010.

  (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)
  ---------------------------------------------------
                                              January
                                   July 3,       2,
                                    2010       2010

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

  Current assets
  Cash and cash equivalents             $471     $334
  Accounts receivable, net             1,144    1,093
  Inventories:
   Raw materials and supplies            224      214
   Finished goods and materials
    in process                           661      696
  Deferred income taxes                  141      128

  Other prepaid assets                   151       93
  -----------------------------  -----------  -------

  Total current assets                 2,792    2,558

  Property, net of accumulated
   depreciation
  of $4,491 and $4,520                 2,916    3,010
  Goodwill                             3,639    3,643
  Other intangibles, net of
   accumulated amortization
  of $46 and $45                       1,457    1,458
  Pension                                185      160

  Other assets                           396      371
  -----------------------------  -----------  -------


  Total assets                       $11,385  $11,200
  -----------------------------  -----------  -------

  Current liabilities
  Current maturities of
   long-term debt                       $954       $1
  Notes payable                          158       44
  Accounts payable                     1,075    1,077
  Accrued advertising and
   promotion                             408      409
  Accrued income taxes                    12       33
  Accrued salaries and wages             187      322

  Other current liabilities              470      402
  -----------------------------  -----------  -------

  Total current liabilities            3,264    2,288

  Long-term debt                       3,915    4,835
  Deferred income taxes                  428      425
  Pension liability                      440      430
  Other liabilities                      954      947

  Commitments and contingencies

  Equity
  Common stock, $.25 par value           105      105
  Capital in excess of par
   value                                 481      472
  Retained earnings                    5,903    5,481
  Treasury stock, at cost            (2,010)  (1,820)

  Accumulated other
   comprehensive income (loss)       (2,096)  (1,966)
  -----------------------------  -----------  -------

  Total Kellogg Company equity         2,383    2,272


  Noncontrolling interests                 1        3
  -----------------------------  -----------  -------


  Total equity                         2,384    2,275
  -----------------------------  -----------  -------


  Total liabilities and equity       $11,385  $11,200
  -----------------------------  -----------  -------
  * Condensed from audited financial statements.

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


  Second quarter of 2010 versus 2009
  -------------------------------------------------------------------------------------------

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

  2010 net sales                  $ 2,064    $ 560    $ 240    $ 198       $ --       $ 3,062
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  2009 net sales                  $ 2,176    $ 617    $ 258    $ 178       $ --       $ 3,229
  ----------------------------  ---------  -------  -------  -------  ---------  ------------
  % change - 2010 vs. 2009:
   Volume (tonnage) (b)             -5.3%    -3.3%    -6.1%     3.9%         --         -4.5%

   Pricing/mix                       -.5%      .8%    10.8%     -.5%         --           .6%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------
  Subtotal - internal business      -5.8%    -2.5%     4.7%     3.4%         --         -3.9%

   Foreign currency impact            .7%    -6.8%   -12.0%     8.5%         --         -1.3%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  Total change                      -5.1%    -9.3%    -7.3%    11.9%         --         -5.2%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------



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

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

  2010 operating profit             $ 362    $ 100     $ 47     $ 20     $ (46)         $ 483
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  2009 operating profit             $ 426    $ 104     $ 57     $ 21     $ (55)         $ 553
  ----------------------------  ---------  -------  -------  -------  ---------  ------------
  % change - 2010 vs. 2009:
   Internal business               -16.2%     6.3%    -9.9%   -10.3%      16.7%        -11.1%

   Foreign currency impact            .9%    -9.6%    -7.1%     9.8%         --         -1.5%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  Total change                     -15.3%    -3.3%   -17.0%     -.5%      16.7%        -12.6%
  ----------------------------  ---------  -------  -------  -------  ---------  ------------

  (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
  Analysis of net sales and operating profit performance


  Year-to-date 2010 versus 2009
  ---------------------------------------------------------------------------------------------

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

  2010 net sales                  $ 4,339    $ 1,166    $ 462    $ 413       $ --       $ 6,380
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------

  2009 net sales                  $ 4,387    $ 1,174    $ 488    $ 349       $ --       $ 6,398
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------
  % change - 2010 vs. 2009:
   Volume (tonnage) (b)             -2.1%      -1.0%    -3.7%     -.7%         --         -2.0%

   Pricing/mix                        .1%        .7%     6.8%     3.0%         --           .9%
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------
  Subtotal - internal business      -2.0%       -.3%     3.1%     2.3%         --         -1.1%

   Foreign currency impact            .9%       -.4%    -8.5%    16.3%         --           .8%
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------

  Total change                      -1.1%       -.7%    -5.4%    18.6%         --          -.3%
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------



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

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

  2010 operating profit             $ 857      $ 205     $ 92     $ 57     $ (91)       $ 1,120
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------

  2009 operating profit             $ 829      $ 199    $ 106     $ 46     $ (98)       $ 1,082
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------
  % change - 2010 vs. 2009:
   Internal business                 2.1%       5.2%    -5.0%      .9%       8.1%          2.9%

   Foreign currency impact           1.2%      -2.1%    -8.2%    23.1%         --           .6%
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------

  Total change                       3.3%       3.1%   -13.2%    24.0%       8.1%          3.5%
  ----------------------------  ---------  ---------  -------  -------  ---------  ------------

  (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.

  Kellogg Company and Subsidiaries
  Up-Front Costs*
  $ millions


                                                      Year-to-date period ended July 3,
                       Quarter ended July 3, 2010                   2010
                     ------------------------------  -----------------------------------

                                 Selling,                             Selling,
                     Cost of   general and                          general and
                      goods   administrative            Cost of    administrative
                      sold       expense      Total   goods sold      expense      Total
  -----------------  -------  --------------  -----  ------------  --------------  -----
  2010
   North America         $ 6             $ 1    $ 7          $ 13             $ 5   $ 18
   Europe                  5             (1)      4             8              --      8
   Latin America           1              --      1             1              --      1
   Asia Pacific           --               1      1             1               2      3

   Corporate              --               2      2            --               2      2
                     -------  --------------  -----  ------------  --------------  -----

    Total               $ 12             $ 3   $ 15          $ 23             $ 9   $ 32
  -----------------  -------  --------------  -----  ------------  --------------  -----


                                                      Year-to-date period ended July 4,
                       Quarter ended July 4, 2009                   2009
                     ------------------------------  -----------------------------------

                                 Selling,                             Selling,
                     Cost of   general and                          general and
                      goods   administrative            Cost of    administrative
                      sold       expense      Total   goods sold      expense      Total
  -----------------  -------  --------------  -----  ------------  --------------  -----
  2009
   North America        $ 18            $ 11   $ 29          $ 35            $ 11   $ 46
   Europe                  9              --      9            10              --     10
   Latin America           1              --      1             2              --      2
   Asia Pacific            1              --      1             1              --      1

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

    Total               $ 29            $ 11   $ 40          $ 48            $ 11   $ 59
  -----------------  -------  --------------  -----  ------------  --------------  -----


  -----------------  -------  --------------  -----  ------------  --------------  -----
  2010 Variance - better (worse) than 2009
   North America        $ 12            $ 10   $ 22          $ 22             $ 6   $ 28
   Europe                  4               1      5             2              --      2
   Latin America          --              --     --             1              --      1
   Asia Pacific            1             (1)     --            --             (2)    (2)

   Corporate              --             (2)    (2)            --             (2)    (2)
                     -------  --------------  -----  ------------  --------------  -----

    Total               $ 17             $ 8   $ 25          $ 25             $ 2   $ 27
  -----------------  -------  --------------  -----  ------------  --------------  -----

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

SOURCE: Kellogg Company

CONTACT: Kellogg Company
Analyst Contact: Kathryn Koessel,(269)961-9089
Media Contact: Kris Charles,(269)961-3799