Kellogg Reports Decline in Sales on European Performance

The Latin American business posted internal net sales growth of 7.5 percent in the quarter. Internal net sales in our European business decreased by 10.4 percent as a result of continued weakness in the region and issues specific to the business.

27 April 2012 --- Kellogg Company has announced first quarter 2012 reported net sales of $3.4 billion, a 1.3 percent decline from the first quarter of 2011. Internal net sales, which exclude the effects of foreign currency translation and acquisitions and dispositions, remain approximately unchanged from the same period last year. First-quarter 2012 reported operating profit was $535 million, a decline of 6.5 percent; internal operating profit declined by 6.1 percent. This decline was the result of lower-than-expected results in the European business and in some categories in the U.S., high-levels of commodity inflation, and the timing of 2012's investment in the company's continuing supply-chain initiatives.

First quarter 2012 reported net earnings were $358 million, or $1.00 per diluted share, approximately unchanged from the first quarter of 2011. First quarter 2012 reported net earnings included a $26 million pre-tax benefit from hedging activities associated with the pending acquisition of the Pringles business.

"While results in the first quarter were lower than we had planned due to weakness in Europe and certain other businesses, we are confident that we are taking the right actions and investing in the right places," said John Bryant, Kellogg Company's president and chief executive officer.

Kellogg North America reported net sales growth of 1.5 percent in the first quarter; internal net sales growth was 1.6 percent. In the first quarter, U.S. Morning Foods and Kashi posted an internal net sales decline of 1.7 percent and U.S. Snacks posted internal net sales growth of 2.3 percent. The U.S. Specialty business posted strong internal net sales growth of 7.8 percent and the North America Other segment reported internal net sales growth of 3.4 percent. First quarter reported North American operating profit declined by 5.1 percent; North American internal operating profit declined by 5.0 percent.

Kellogg International reported a net sales decline of 7.1 percent in the first quarter. Internal net sales for the quarter declined 3.7 percent. The Latin American business posted internal net sales growth of 7.5 percent in the quarter. Internal net sales in our European business decreased by 10.4 percent as a result of continued weakness in the region and issues specific to the business. The Asia Pacific segment posted internal net sales growth of 1.6 percent.

Kellogg International's first quarter reported operating profit declined by 10.7 percent; internal operating profit declined by 9.7 percent. Latin America's internal operating profit increased by 10.6 percent in the first quarter. Europe's first-quarter internal operating profit declined by 19.8 percent and accounted for all of the International business' decline in the quarter. Asia Pacific's internal operating profit decreased by 0.6 percent.

Kellogg's interest expense totaled $32.6 million in the first quarter, including the $26 million benefit from hedging. The reported effective tax rate for the quarter was 30.5 percent.

Cash flow, defined as cash from operating activities less capital expenditures, was $277 million for the first quarter, compared to $207 million in the first quarter of 2011. Kellogg repurchased $63 million of shares, all of which were completed early in the quarter.

As previously announced, Kellogg adjusted its guidance for internal net sales growth to a range between 2 and 3 percent. The decline was driven by the Company's European business and initial weak volume growth in certain U.S. categories. As a result of the change in sales guidance, the Company now expects that full-year internal operating profit will decline between 2 to 4 percent. Expectations for full-year, as-reported earnings per share have been lowered by approximately 2 percent to a range between $3.18 and $3.30 per share, including the expected impact of the Pringles acquisition, continued investments in supply chain, an update of the company's SAP platform, continued investment in brand building, and lower-than-originally-anticipated share repurchases.

"Despite the difficult environment we faced in the first quarter, we remain committed to investment and optimistic about the strength of our brands and the categories in which we compete," continued Bryant. "We're also very excited about adding the great Pringles brand to our family. The acquisition of the Pringles business will bring significant opportunity and only increases our confidence in the long-term potential of our business."