Kellogg Announces Strong Q1 2009; Affirms Full-Year Guidance; Significantly Increases Up-Front Cost Investments

Kellogg continues to be well positioned to drive sustainable and dependable performance. The Company affirmed its previous 2009 guidance of 3-4% internal net sales growth and mid single-digit internal operating profit growth.

01/05/09 Kellogg Company reported solid first quarter 2009 growth in internal net sales, internal operating profit and currency-neutral earnings per share. The strong performance was driven by internal net sales growth and a focus on cost savings.

Kellogg also announced that it plans to increase up-front cost investments for cost savings initiatives from the original expectation of $0.14 per share to approximately $0.22 per share for 2009, while still maintaining current 2009 earnings per share guidance. These investments will help enable the Company to deliver its goal of reducing annual costs by $1 billion by the end of 2011.

First quarter net earnings were $321 million, a 2% increase from last year's $315 million. First quarter reported earnings per diluted share were $0.84, a 4% increase on a reported basis and a 14% increase on a currency-neutral basis. First quarter results included an estimated $0.05 per share impact due to the cost of the recent peanut-related recalls.

"By remaining focused on our business model and strategy, we performed ahead of our expectations during the first quarter despite cost pressures and the difficult economic environment," said David Mackay, Kellogg's chief executive officer. "We also continue to focus on cost-savings initiatives and reinvestment for the future. We now plan to increase our up-front cost investments to achieve our ambitious $1 billion savings target."

First quarter reported net sales decreased 3% to $3.2 billion. Internal net sales growth, which excludes the effects of foreign currency translation and acquisitions, rose 4%. Kellogg North America posted first quarter reported net sales growth of 3%; internal net sales growth was 4%. North America Retail Cereal delivered internal net sales growth of 6% for the quarter. Retail Snacks posted internal net sales growth of 2%, which was negatively impacted by the peanut-related recalls. North America Frozen and Specialty Channels businesses together delivered internal net sales growth of 6%.

Kellogg International posted a first quarter 2009 reported net sales decline of 14%. However, net sales growth for Kellogg International was 4% on an internal basis, which excludes the effects of currency translation and acquisitions. First quarter internal net sales growth in Europe was 1% and was negatively impacted by some challenging retailer negotiations, which have now been resolved. Latin America internal net sales increased 8%, while Asia Pacific internal net sales rose 11%.

First quarter operating profit was $529 million, a 3% decline on a reported basis, however on an internal basis it was a strong 7% increase. Total up-front costs for cost-reduction initiatives were approximately $0.03 per share, in line with the first quarter of last year.

Cash flow, defined as cash from operating activities less capital expenditures, was $172 million for the quarter including the unfavorable impacts of foreign exchange and the timing of interest payments.

Kellogg Affirms 2009 Guidance

Kellogg continues to be well positioned to drive sustainable and dependable performance. The Company affirmed its previous 2009 guidance of 3-4% internal net sales growth and mid single-digit internal operating profit growth. 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. This guidance includes an approximately $0.06 earnings per share cost in 2009 from the peanut-related recalls and an increase in up-front charges for cost reduction initiatives from $0.14 per share to $0.22 per share.

CEO Mackay concluded, "Our strong start increases our visibility with respect to another year of sustainable and dependable performance. For 2009, we will focus on driving solid top-line growth, considerable cost savings and strong reinvestment."