Kellogg Profits Impacted by Slow Cereal Sales

01 Aug 2014 --- Kellogg Company has announced second-quarter results for earnings per share that were broadly in-line with the company's expectations. Second-quarter 2014 reported net sales decreased by 0.8 percent to $3.7 billion. Internal net sales, which exclude the effects of foreign currency translation, acquisitions, dispositions, and integration costs, decreased by 1.5 percent over the same period.

Second-quarter 2014 operating profit was $467 million, a reported decrease of 18.1 percent; this decrease was driven primarily by costs associated with Project K, the company's four-year efficiency and effectiveness program, and lower sales. Underlying internal operating profit,* which excludes the effects of foreign currency translation, acquisitions, dispositions, mark-to-market accounting, integration costs, and costs associated with Project K, decreased by 7.2 percent. The decline in underlying internal operating profit was largely the result of lower sales, and investment in brand-building activities.

Reported earnings for the second quarter 2014 were $295 million, or $0.82 per diluted share, a decrease of 15 percent from the $0.96 per diluted share reported in the second quarter of last year. This quarter's reported earnings per share included an impact from mark-to-market of $0.02 per share, $0.16 per share of costs associated with Project K, and approximately $0.02 per share of integration costs related to the acquisition of Pringles. Excluding these items, comparable second quarter 2014 earnings were $1.02 per share, broadly in-line with the company's expectations; this result included a $0.02 benefit from currency-translation.

"We have announced earnings per share for the second quarter that were broadly in-line with our expectations. While we saw growth in various areas of our business including Pringles and the international segments, the cereal category in developed markets remained challenging," said John Bryant, Kellogg Company's chairman and chief executive officer. "Our Project K efficiency and effectiveness program continues to go well, and we are in the very early stages of the increased investment we are making in our developed-markets business. We know that improvement will take some time, but we believe we are making the right decisions to drive profitable revenue growth in the future."

Net sales posted by Kellogg North America were $2.4 billion in the second quarter, a reported decrease of 3.7 percent; internal net sales decreased by 3.4 percent. The U.S. Morning Foods segment posted an internal net sales decline of 4.9 percent. Internal net sales in the U.S. Snacks segment decreased by 2.7 percent. The U.S. Specialty Channels segment posted a 1.4 percent internal net sales increase in the quarter and the North America Other segment, which is comprised of the U.S. Frozen Foods and Canadian businesses, posted a 4.9 percent decrease in internal net sales. Reported operating profit in North America decreased by 11.9 percent; underlying internal operating profit declined by 8.7 percent, largely as the result of lower sales and increased investment in brand building.

Reported International net sales increased by 6.9 percent in Europe in the quarter; internal net sales increased by 0.7 percent. In Latin America, reported net sales increased by 5.2 percent and internal net sales increased by 6.9 percent, due to strong price realization, innovation, and brand-building activities. Reported net sales in Asia Pacific decreased by 1.5 percent and internal net sales increased by 0.5 percent.