Kellogg Announces Strong Third-Quarter Results, Expresses Confidence in Full-Year Earnings Visibility

30 Oct 2008

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%.

30/10/08 Kellogg Company 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.

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."