Kellogg Reports Strong Results Despite 4th Quarter Earnings Decline

01/02/05 – Kellogg’s fourth quarter and full-year earnings exceeded previously increased forecast ranges. A higher tax rate, increased promotional spending and restructuring expenses caused a dip in fourth quarter earnings but overall the company reports “an excellent year”.

Kellogg has reaffirmed its earnings forecast range for 2005 and reported a 13% increase in its net earnings for the full year 2004. The company reports earnings of $890.6 million this year, up from last year's $787.1 million. Earnings were $2.14 per diluted share, an increase of 11% from $1.92 per share in 2003.

A higher tax rate was responsible for the decrease in  reported net earnings in the fourth quarter of 2004 which dropped to $186.4 million, or $0.45 per diluted share, compared to $188.0 million, or $0.46 per share in the fourth quarter of 2003. This decline was anticipated, Kellogg reports.

The higher tax rate (35.9% in the fourth quarter) resulted primarily from the Company's decision to repatriate foreign earnings as a result of passage of the American Jobs Creation Act.

"2004 was another excellent year for our Company," said Jim Jenness, Kellogg's chairman and chief executive officer-designate. "We remained focused on innovation and brand building, we added excitement to our categories, and we improved mix. Importantly, we did all this while making significant investment in our future growth."
Reported net sales in 2004 increased by 9% to $9.6 billion; fourth quarter sales increased by 12%, to $2.4 billion. Internal net sales growth, which excludes the effect of foreign-currency translation and a 53rd week, was 5% for the full year and 4% in the fourth quarter.

Sales increased in the United Kingdom despite increased competitive activity, Kellogg’s reports. The remainder of the European business also posted increased sales in 2004. The Asia Pacific business reported internal sales growth of 2% for the full year and 5% for the fourth quarter despite a relatively weak cereal category in Korea and continued competitive activity in Australia.

Increased sales of toaster pastries, crackers and wholesome snacks accounted for its “excellent full-year growth,” says Kellogg. Retail snacks posted internal sales growth of 8% in 2004 and 10% in the fourth quarter. The Frozen and Specialty Channels businesses posted internal growth of 4% for the full year and 3% for the fourth quarter. These results were led by mid single-digit internal sales growth in the Food Away From Home business and double-digit growth in the Eggo business. Keebler’s cookies posted weak sales and cookie sales are not expected to be strong this year.

Internal sales growth in Latin America was 11% in 2004 and 2% in the fourth quarter. Full-year growth was driven by increased sales in both cereal and snacks in the Mexican market. Fourth quarter growth was limited by difficult comparisons in Mexico and the repurchase of a few weeks of inventory elsewhere in Latin America.

Kellogg is a world leader in the production of convenience foods, producing everything from cereals and toaster pastries to cereal bars, cookies and ice-cream cones. Company brands include Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-grain, Rice Krispies and more.

Last November (2004) Kellogg premiered a new “limited edition” children’s cereal labeled “The Incredibles.” The company claims the cereal is low in fat and provides 11 essential vitamins and minerals. It was launched to provide direct competition with Kellogg’s biggest competitor, General Mills which offers a line of whole grain cereals.

Facing calls for healthier diets and lifestyles for children and the general population by governments and health care advocates, the two cereal giants are going head-to-head in a bid to meet new dietary guidelines that recommend higher fiber and fruit content.

New dietary guidelines issued by the U.S. government this month advocate eating more whole grains such as whole wheat and oats, but Kellogg executives shrugged off analysts' suggestions that General Mills' newly reformulated line of cereals could disadvantage its larger rival.

Jim Jenness, will replace incoming U.S. Commerce Secretary Carlos Gutierrez as Kellogg's chief executive in the next week.