Kellogg Company Announces Third-Quarter Results: Solid Underlying Performance
John Bryant: "We're pleased with the improving trends in our underlying performance, which is in-line with our expectations and includes strong revenue growth in many of our businesses,"
02 Nov 2012 --- Kellogg Company announced third quarter 2012 reported net sales of $3.7 billion, an increase of 12.3 percent from the third quarter of 2011. Internal net sales increased by 2.8 percent in the third quarter. Reported operating profit was $479 million, an increase of 3.2 percent; internal operating profit declined by 4.9 percent. Higher commodity costs, last month's recall, and a high single-digit increase in brand-building investment all had an impact on operating profit. Internal results exclude the effects of foreign currency translation, the results from the recently-acquired Pringles business, integration costs, and divestitures.
Reported third quarter 2012 net earnings were $296 million, or $0.82 per diluted share, an increase of 2.5 percent from the $0.80 per diluted share reported in the third quarter of 2011. This quarter's reported earnings per share included approximately $0.04 of integration costs related to the acquisition of Pringles. The cost of the recall announced last month was approximately $0.06 per share, which was offset by better-than-expected performance from the Pringles business and certain below-the-line items.
"We're pleased with the improving trends in our underlying performance, which is in-line with our expectations and includes strong revenue growth in many of our businesses," said John Bryant , Kellogg Company's president and chief executive officer. "We're also pleased that the Pringles business performed better during the quarter than we had expected. While it's early, we remain optimistic regarding the potential of this iconic brand."
North America
Kellogg North America's third quarter reported net sales increased by 11.1 percent to $2.5 billion; internal net sales increased by 3.7 percent, including the impact of last month's recall. The U.S. Morning Foods and Kashi segment posted internal net sales growth of 5.4 percent. The segment posted strong performance in both the cereal and toaster pastry businesses during the quarter. Internal net sales growth in the U.S. Snacks business was 0.3 percent; this growth, however, built on the strong five percent growth posted in the third quarter of last year. The U.S. Specialty segment posted third quarter internal net sales growth of 5.5 percent. The North America Other segment reported internal net sales growth of 5.2 percent as the result of good rates of growth in the Frozen Foods business. Including the impact of the recall, North America's reported operating profit increased by 6.8 percent and internal operating profit decreased by 1.6 percent.
International
Kellogg International's reported net sales increased to $1.3 billion, or by 14.8 percent from the third quarter of 2011; internal net sales increased by one percent. The Latin American business posted quarterly internal net sales growth of 3.6 percent. Internal net sales of the European business decreased by 2.5 percent, a sequential improvement over the performance posted earlier this year, as expected. Within this segment, the U.K. business posted increased internal net sales. The Asia Pacific segment posted internal net sales growth of 6.8 percent in the quarter as the result of good performance in Australia, South Africa, and India. Kellogg International's reported third quarter 2012 operating profit declined by 2.7 percent; internal operating profit declined by 10.5 percent, due to results in Europe and a strong increase in investment in brand building in both Asia Pacific and Latin America.
Interest and Tax
Interest expense was $73 million in the third quarter. The effective tax rate was 28.8 percent.
Cash flow
Year-to-date cash flow, defined as cash from operating activities less capital expenditure, was $1,113 million through the end of the third quarter, a year-over-year increase of $236 million. This includes a working-capital benefit from the acquisition of Pringles and lower capital expenditure than in the comparable period of 2011.
Full-Year 2012 Guidance
The company reaffirmed its guidance for full-year internal net sales growth of between two and three percent. Due to the cost of last month's recall, the company now expects that full-year internal operating profit will decline between four and six percent. The company also reaffirmed its guidance for as-reported earnings per share to be in a range between $3.18 and $3.30 per share, including the cost of the recall and the anticipated impact of the Pringles acquisition.
Bryant continued, "Our third quarter results reflect the continued progress we have made in our performance and are testament to the hard work of Kellogg's employees around the world."
