Kellogg Delivers Strong Q2 2009
"Our continuing strong performance in the weak economy demonstrates the resilience and effectiveness of our Sustainable Growth model, as well as the benefits of our financial discipline," said Mackay.
31 Jul 2009 Kellogg Company reported second quarter 2009 financial results that include double-digit growth in net earnings and internal operating profit. The Company posted these better-than-expected results despite ongoing cost pressures and the challenging economic environment. Second quarter net earnings were $354 million, a 13% increase from last year's second quarter net earnings of $312 million. Earnings per diluted share were $0.92 for the quarter, a year-over-year increase of 12% on a reported basis and 23% higher on a currency-neutral basis despite higher up-front costs.
"We remain committed to delivering sustainable and dependable performance as we work through the current tough economic environment," said David Mackay, Kellogg's chief executive officer. "This focus continued to provide strong returns in the second quarter which were ahead of expectations. We now enter the second half of the year with increased confidence in our ability to deliver on our long-term targets, as well as the visibility and flexibility to increase our investments for future growth."
Kellogg Company is on track to deliver $1 billion in annualized savings from efficiency initiatives by year-end 2011. In addition, the Company announced that it plans to increase up-front cost investments for savings initiatives to approximately $0.26 per share for 2009 while increasing current 2009 earnings per share guidance.
Second quarter reported net sales were $3.2 billion, representing a 3% decrease versus the second quarter of 2008. However, internal net sales growth, which excludes the effects of foreign currency translation and acquisitions, rose 3%, in line with the Company's long-term annual growth targets. Kellogg North America posted second quarter net sales growth of 2% on a reported basis and 3% on an internal basis. Internal net sales growth for Kellogg North America was comprised of internal net sales growth delivery from North America Retail Cereal of 4%, North America Frozen and Specialty Channels of 5%, and North America Snacks of 3%. While second quarter top-line growth for North America Snacks was negatively impacted by the peanut-related recall, most of the previously affected products returned to the marketplace by quarter-end.
Kellogg International posted a second quarter net sales decline of 13% on a reported basis, however net sales grew 2% on an internal basis, which excludes the effects of currency translation and acquisitions. Internal net sales for Kellogg International was comprised of Latin America's internal net sales growth of 8%, Asia Pacific's growth of 3%, and Europe's decline of 1% versus the second quarter of last year. Challenging negotiations with some European retailers in the first quarter, though now resolved, negatively impacted sales in that region for the second quarter.
Operating profit for the second quarter of $553 million was a solid 4% increase on a reported basis, and a strong 14% increase on an internal basis. Total up-front costs for cost-reduction initiatives totaled approximately $0.07 per share, out-pacing 2008's second quarter up-front costs of $0.04 per share. Second quarter 2009 gross margin of 43.5% represents a 30 basis points increase over last year's second quarter on a reported basis.
Second quarter earnings per share benefitted from favorability in below the line items such as other income and expense, interest expense and a lower effective tax rate.
Kellogg Company continued to deliver strong cash flow, generating $535 million during the first half of 2009, including an unfavorable impact from foreign exchange. This cash flow, defined as cash from operating activities less capital expenditures, surpasses the 2008 first half cash flow of $510 million. For the full-year 2009, Kellogg continues to anticipate cash flow, as defined, of between $1.05 - $1.15 billion. "Our continuing strong performance in the weak economy demonstrates the resilience and effectiveness of our Sustainable Growth model, as well as the benefits of our financial discipline," said Mackay.
Kellogg Raises Full-Year 2009 Guidance
Supported by the strong first half performance, continuing momentum, and the acceleration of savings realization, Kellogg Company raised its full-year 2009 earnings per share guidance to the range of 8 - 10% on a currency-neutral basis, which excludes the effects of foreign currency translation. Based on current rates, the Company now expects a negative impact from foreign currency exchange of approximately 6% to reported earnings per share for the full year. Importantly, Kellogg's guidance for the year includes a substantial increase in up-front charges for cost reduction initiatives to approximately $0.26 per share from the initial expectation of $0.14 per share.
Kellogg also raised full-year guidance for internal operating profit growth to the high end of its previously guided mid single-digit range. Management affirmed its internal net sales growth guidance of 3 - 4% for the year as well.
CEO Mackay concluded, "With strong brands, solid business fundamentals and our focus on managing the business for the long term, Kellogg Company is well positioned in the marketplace to continue delivering sustainable and dependable performance."
