Battle Creek, Mich., Jul 31, 2008 - Kellogg Company today reported second quarter 2008 earnings per share growth of 9% with an 11% increase in sales.
Results were driven by strong execution, innovation and price realization, and were achieved after absorbing significant cost inflation. In addition, Kellogg has raised its 2008 full-year earnings guidance to a range of $2.95 to $3.00 per diluted share, as a result of the Company's first half performance and its confidence regarding performance for the remainder of the year.
The Company today also announced that its board of directors has authorized an additional $500 million share repurchase program, to be executed within the next twelve months. The Company's initial 2008 authorization of $650 million has already been completed. The additional repurchases are expected to commence late this year from Company cash balances. Consequently, the Company does not anticipate the purchases will have a meaningful impact on 2008 earnings per share.
Reported net earnings for the quarter were $312 million, a 4% increase over last year's $301 million. Earnings were $0.82 per diluted share versus last year's $0.75, an increase of 9%. The second quarter performance included the impact of significantly higher commodity inflation and a double-digit increase in advertising spending offset by lower upfront costs and a lower tax rate.
"Our first half performance provides further evidence of the strength of our business model and strategy," said David Mackay, Kellogg's chief executive officer. "Despite significant inflation headwinds, we capitalized on our momentum to further increase our investment in future growth. We increased our earnings guidance and acquired two businesses in emerging markets within the first half of the year, and we continue to utilize our strong cash flow to return profits to our shareholders through dividends and share repurchases."
Reported net sales in the second quarter increased 11% to $3.3 billion. Internal net sales growth, which excludes the effect of foreign-currency translation and acquisitions, was 6%.
Kellogg North America posted reported net sales growth of 7%; internal net sales growth was 6%, driven by broad-based growth across the region. Retail Cereal posted internal net sales growth of 5%, the Retail Snacks business posted internal net sales growth of 6% and the North America Frozen and Specialty Channels businesses reported internal net sales growth of 10%.
Kellogg International reported second quarter net sales growth of 17%, or 6% excluding the favorable effect of currency translation and acquisitions. Internal net sales in Latin America increased by 7% and European internal net sales grew by 5%. The Asia Pacific region posted internal net sales growth of 9%.
Reported operating profit was $530 million in the second quarter of 2008, an increase of 2% from the second quarter of last year. Internal operating profit growth was also 2% in the second quarter. Total up-front costs incurred for cost-reduction initiatives were approximately 4 cents per share. Kellogg still expects that up-front costs related to cost-reduction initiatives for the full year will be approximately $0.14 of earnings per share.
Cash flow, defined as cash from operating activities less capital expenditures, was $510 million in the first half versus last year's $569 million. For the full year, Kellogg still anticipates cash flow of between $1,000 million and $1,075 million.
Kellogg Expresses Increased Confidence and Raises Full-Year Guidance
Kellogg now expects full-year earnings to be in the range of $2.95 to $3.00 per share. The Company still expects that internal sales and operating profit will increase at a mid single-digit rate for the full year. Expectations for 2008 now include incremental commodity, energy, fuel and benefits expense of approximately 90 cents per share versus the previous expectation of 80 cents per share.
CEO Mackay concluded, "While commodities and the economic outlook remain volatile, our business model and strategy give us continued confidence that we will achieve our long-term goals."
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(millions, except per share data)
=======================================================
Year-to-date
Quarter ended period ended
June 28, June 30, June 28, June 30,
(Results are unaudited) 2008 2007 2008 2007
---------------------------------------------------------------------
Net sales $3,343 $3,015 $6,601 $5,978
Cost of goods sold 1,899 1,638 3,793 3,337
Selling, general and
administrative expense 914 859 1,733 1,624
---------------------------------------------------------------------
Operating profit 530 518 1,075 1,017
Interest expense 77 76 159 154
Other income (expense), net (8) -- (19) 2
---------------------------------------------------------------------
Earnings before income taxes 445 442 897 865
Income taxes 133 141 270 243
---------------------------------------------------------------------
Net earnings $312 $301 $627 $622
---------------------------------------------------------------------
Net earnings per share:
Basic $.82 $.76 $1.64 $1.56
Diluted $.82 $.75 $1.63 $1.55
Dividends per share $.3100 $.2910 $.6200 $.5820
---------------------------------------------------------------------
Average shares outstanding:
Basic 379 397 382 397
---------------------------------------------------------------------
Diluted 382 401 386 401
---------------------------------------------------------------------
Actual shares outstanding
at period end 379 396
========================================================
Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
========================================================
Year-to-date
Quarter ended period ended
(millions) June 28, June 30, June 28, June 30,
(Results are unaudited) 2008 2007 2008 2007
---------------------------------------------------------------------
Net sales
North America $2,127 $1,980 $4,275 $3,982
Europe 746 623 1,423 1,197
Latin America 283 253 536 482
Asia Pacific (a) 187 159 367 317
---------------------------------------------------------------------
Consolidated $3,343 $3,015 $6,601 $5,978
---------------------------------------------------------------------
Operating profit
North America $380 $365 $783 $726
Europe 122 127 234 235
Latin America 60 55 105 102
Asia Pacific (a) 22 20 53 47
Corporate (54) (49) (100) (93)
---------------------------------------------------------------------
Consolidated $530 $518 $1,075 $1,017
---------------------------------------------------------------------
========================================================
(a) Includes Australia, Asia and South Africa.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
========================================================
Year-to-date
period ended
June 28, June 30,
(unaudited) 2008 2007
-------------------------------------------------------------------
Operating activities
Net earnings $627 $622
Adjustments to reconcile net earnings to
operating cash flows:
Depreciation and amortization 182 185
Deferred income taxes (3) (92)
Other (a) 71 79
Postretirement benefit plan contributions (48) (34)
Changes in operating assets and liabilities (140) (10)
-------------------------------------------------------------------
Net cash provided by operating activities 689 750
-------------------------------------------------------------------
Investing activities
Additions to properties (179) (181)
Acquisitions of business, net of cash acquired (133) --
Investments in joint ventures and other (b) 10 (4)
-------------------------------------------------------------------
Net cash used in investing activities (302) (185)
-------------------------------------------------------------------
Financing activities
Net issuances of notes payable 152 699
Issuances of long-term debt 756 --
Reductions of long-term debt (465) (729)
Issuances of common stock 61 100
Common stock repurchases (650) (264)
Cash dividends (236) (232)
Other 9 10
-------------------------------------------------------------------
Net cash used in financing activities (373) (416)
-------------------------------------------------------------------
Effect of exchange rate changes on cash 18 14
-------------------------------------------------------------------
Increase in cash and cash equivalents 32 163
Cash and cash equivalents at beginning
of period 524 411
---------------------------------------------------------------------
Cash and cash equivalents at end of
period $556 $574
========================================================
========================================================
Supplemental Financial Data:
Cash Flow (operating cash flow less
property additions) (c) $510 $569
========================================================
(a) Consists principally of non-cash expense accruals for employee compensation and benefit obligations.
(b) Includes proceeds from disposition of assets.
(c) 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)
========================================================
June 28, December 29,
2008 2007
(unaudited) *
----------------------------------------------------------------------
Current assets
Cash and cash equivalents $556 $524
Accounts receivable, net 1,285 1,011
Inventories:
Raw materials and supplies 248 234
Finished goods and materials in process 694 690
Deferred income taxes 85 103
Other prepaid assets 169 140
----------------------------------------------------------------------
Total current assets 3,037 2,702
Property, net of accumulated
depreciation of $4,502 and $4,313 3,071 2,990
Goodwill 3,597 3,515
Other intangibles, net of accumulated
amortization of $42 and $41 1,449 1,450
Pension 518 481
Other assets 321 259
----------------------------------------------------------------------
Total assets $11,993 $11,397
========================================================
Current liabilities
Current maturities of long-term debt $2 $466
Notes payable 1,643 1,489
Accounts payable 1,206 1,081
Accrued advertising and promotion 417 378
Accrued income taxes 28 --
Accrued salaries and wages 222 316
Other current liabilities 365 314
----------------------------------------------------------------------
Total current liabilities 3,883 4,044
Long-term debt 4,008 3,270
Deferred income taxes 662 647
Other liabilities 936 910
Shareholders' equity
Common stock, $.25 par value 105 105
Capital in excess of par value 407 388
Retained earnings 4,590 4,217
Treasury stock, at cost (1,915) (1,357)
Accumulated other comprehensive income
(loss) (683) (827)
----------------------------------------------------------------------
Total shareholders' equity 2,504 2,526
----------------------------------------------------------------------
Total liabilities and shareholders'
equity $11,993 $11,397
========================================================
* From audited financial statements.