Battle Creek, Mich., Oct. 29, 2008 - Kellogg Company today reported third-quarter 2008 sales growth of 9% and earnings per share growth of 17% driven by strong underlying business momentum.
Reported net earnings for the quarter were $342 million, a 12% increase over last year's $305 million. The third-quarter performance included the impact of significantly higher commodity inflation and a higher tax rate, offset by lower upfront costs. Earnings were $0.89 per diluted share versus last year's $0.76, an increase of 17%.
"The Kellogg business model and strategy continue to give us the ability to offset inflationary headwinds while hitting our targets and delivering sustainable, dependable performance in these very volatile times," said David Mackay, Kellogg's chief executive officer.
Reported net sales in the third quarter increased 9% to $3.3 billion. Internal net sales growth, which excludes the effects of foreign currency translation, acquisitions and differences in the number of shipping days, was 7%.
Kellogg North America posted broad-based reported net sales growth of 10%; internal net sales growth was 9%. Retail Cereal posted internal net sales growth of 7%, the Retail Snacks business posted internal net sales growth of 10% and the North America Frozen and Specialty Channels businesses delivered internal net sales growth of 11%.
Kellogg International reported third-quarter net sales growth of 9%, or 3% on an internal basis, which excludes the favorable effects of currency translation, acquisitions and differences in the number of shipping days. Internal net sales in Europe increased 3%, while Latin America internal sales decreased 1% versus last year's strong 12% growth. Economic weakness and a competitive environment impacted Mexico's performance. The Asia Pacific region posted strong internal net sales growth of 10%.
Operating profit was $533 million in the third quarter of 2008, an increase of 9% on a reported and internal basis. Total upfront costs incurred for cost-reduction initiatives were approximately $0.01 per share. Kellogg still expects that upfront 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 $893 million in the first three quarters of the year versus $961 million during the same period of 2007. For the full year, Kellogg still anticipates cash flow of between $1 billion and $1.075 billion.
Kellogg Expresses Increased Confidence in Achieving High End of 2008 EPS Target
Kellogg now anticipates that 2008 earnings per share will be closer to the high end of the previous guidance of $2.95 to $3.00 per share. The Company also expects mid single-digit internal sales and internal operating profit growth for the full year. Total cost pressure expectations remain at approximately 9% of cost of goods.
For 2009, Kellogg anticipates another year of sustainable and dependable performance. Given the current business momentum, the company provided guidance of mid single-digit internal sales growth -- above its long-term guidance of low single-digit growth. In addition, internal operating profit is projected to also grow at a mid single-digit rate. The Company remains confident that it can achieve high single-digit EPS growth on a currency neutral basis, which excludes the effects of foreign currency translation but includes the impact of acquisitions, dispositions and differences in the number of shipping days. However, the recent volatility in foreign exchange markets makes forecasting reported EPS growth very difficult at this time.
CEO Mackay concluded, "We remain confident in our ability to deliver another year of sustainable and dependable performance despite the uncertain economic environment and unpredictable foreign exchange markets."
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(millions, except per share data)
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Year-to-date
Quarter ended period ended
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
(Results are unaudited) 2008 2007 2008 2007
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Net sales $3,288 $3,004 $9,889 $8,982
Cost of goods sold 1,885 1,662 5,678 4,999
Selling, general and
administrative expense 870 850 2,603 2,474
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Operating profit 533 492 1,608 1,509
Interest expense 71 79 230 233
Other income (expense), net 13 3 (6) 5
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Earnings before income taxes 475 416 1,372 1,281
Income taxes 133 111 403 354
Net earnings $342 $305 $969 $927
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Net earnings per share:
Basic $.90 $.77 $2.54 $2.34
Diluted $.89 $.76 $2.51 $2.31
Dividends per share $.3400 $.3100 $.9600 $.8920
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Average shares outstanding:
Basic 380 395 382 397
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Diluted 384 399 385 401
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Actual shares outstanding at
period end 381 394
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Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
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Year-to-date
Quarter ended period ended
(millions) Sept. 27, Sept. 29, Sept. 27, Sept. 29,
(Results are unaudited) 2008 2007 2008 2007
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Net sales
North America $2,156 $1,960 $6,431 $5,942
Europe 666 604 2,089 1,801
Latin America 277 270 813 752
Asia Pacific(a) 189 170 556 487
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Consolidated $3,288 $3,004 $9,889 $8,982
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Operating profit
North America $380 $333 $1,163 $1,059
Europe 113 110 347 345
Latin America 61 66 166 168
Asia Pacific(a) 26 18 79 65
Corporate (47) (35) (147) (128)
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Consolidated $533 $492 $1,608 $1,509
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(a) Includes Australia, Asia and South Africa.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
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Year-to-date period ended
September 27, September 29,
(unaudited) 2008 2007
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Operating activities
Net earnings $969 $927
Adjustments to reconcile net earnings to
operating cash flows:
Depreciation and amortization 274 275
Deferred income taxes (12) (114)
Other(a) 122 138
Postretirement benefit plan contributions (60) (42)
Changes in operating assets and liabilities (105) 69
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Net cash provided by operating activities 1,188 1,253
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Investing activities
Additions to properties (295) (292)
Acquisitions of business, net of cash
acquired (212) --
Other 11 (4)
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Net cash used in investing activities (496) (296)
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Financing activities
Net issuances of notes payable 48 566
Issuances of long-term debt 756 --
Reductions of long-term debt (466) (730)
Issuances of common stock 155 141
Common stock repurchases (650) (417)
Cash dividends (365) (354)
Other 14 8
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Net cash used in financing activities (508) (786)
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Effect of exchange rate changes on cash (24) (6)
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Increase in cash and cash equivalents 160 165
Cash and cash equivalents at beginning of
period 524 411
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Cash and cash equivalents at end of period $684 $576
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Supplemental Financial Data:
Cash Flow (operating cash flow less
property additions)(b) $893 $961
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(a) Consists principally of non-cash expense accruals for employee
compensation and benefit obligations
(b) We use this non-GAAP measure of cash flow to focus management and
investors on the amount of cash available for debt reduction,
dividend distributions, acquisition opportunities, and share
repurchase
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
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September 27, December 29,
2008 2007
(unaudited) *
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Current assets
Cash and cash equivalents $684 $524
Accounts receivable, net 1,243 1,011
Inventories:
Raw materials and supplies 236 234
Finished goods and materials in process 671 690
Deferred income taxes 145 103
Other prepaid assets 128 140
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Total current assets 3,107 2,702
Property, net of accumulated depreciation
of $4,432 and $4,313 3,067 2,990
Goodwill 3,652 3,515
Other intangibles, net of accumulated
amortization of $42 and $41 1,449 1,450
Pension 511 481
Other assets 252 259
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Total assets $12,038 $11,397
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Current liabilities
Current maturities of long-term debt $2 $466
Notes payable 1,539 1,489
Accounts payable 1,134 1,081
Accrued advertising and promotion 417 378
Accrued income taxes 30 --
Accrued salaries and wages 262 316
Other current liabilities 388 314
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Total current liabilities 3,772 4,044
Long-term debt 4,008 3,270
Deferred income taxes 708 647
Other liabilities 931 910
Shareholders' equity
Common stock, $.25 par value 105 105
Capital in excess of par value 424 388
Retained earnings 4,790 4,217
Treasury stock, at cost (1,812) (1,357)
Accumulated other comprehensive income
(loss) (888) (827)
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Total shareholders' equity 2,619 2,526
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Total liabilities and shareholders' equity $12,038 $11,397
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* From audited financial statements