Kellogg Company Delivers Second-Quarter Results and Reaffirms Full-Year Guidance

BATTLE CREEK, Mich., Aug. 2, 2012 (GLOBE NEWSWIRE) -- Kellogg Company (NYSE:K) today announced second quarter 2012 reported net sales of $3.5 billion, an increase of 2.6 percent from the second quarter of 2011. Internal net sales increased by 2.3 percent over the same period. Operating profit was $485 million in the quarter, a reported decrease of 10.7 percent; internal operating profit declined by five percent, as expected. Higher commodity costs, the timing of investment in Supply Chain, and anticipated weakness in European results all had an impact on operating profit. Internal results exclude the effects of foreign currency translation, one month of results from the recently acquired Pringles business, transaction and integration costs, and divestitures.

Reported second quarter 2012 earnings were $301 million, or $0.84 per diluted share, a decrease of 10.6 percent from the earnings of $0.94 per diluted share reported in the second quarter of 2011. This quarter's earnings per share included $0.07 of transaction and integration costs and a $0.02, one-time, below-the-line benefit, both associated with the acquisition of the Pringles business. The below-the-line benefit was the result of a lower tax rate and a gain from foreign exchange; this benefit was partially offset by the impact of interest-rate swaps also related to the acquisition of Pringles.

"We are pleased that our top-line performance improved in the second quarter. This year, we have taken strategic actions that have also made a difference in the near-term," said John Bryant, Kellogg Company's president and chief executive officer. "Last year we outlined a plan that focused the company on driving our two core growth platforms: cereal and snacks. The acquisition of the Pringles business takes us a long way toward achieving our goals and provides us with significant potential for future growth."

North America

Kellogg North America's reported net sales increased by 5.9 percent to $2.4 billion in the second quarter; internal net sales increased by 3.9 percent. The U.S. Morning Foods and Kashi segment posted internal sales growth of 1.2 percent. The company posted better performance in the cereal business than it did in the first quarter of the year; it also realized significant growth in the Pop-Tarts business. Internal net sales growth in the U.S. Snacks business was 4.1 percent, building on 4.9 percent growth in the comparable period of last year; the cookie, cracker, and wholesome snack businesses all posted revenue growth for the quarter.  The U.S. Specialty segment posted internal net sales growth of 6.3 percent and the North America Other segment reported internal net sales growth of 8.9 percent as the result of strong growth in both the Canadian and Frozen Foods businesses. Second quarter North American reported operating profit increased by 4.8 percent; North American internal operating profit increased by 3.3 percent. 

International

Kellogg International reported net sales of $1.1 billion, or a decline of 3.8 percent from the second quarter of 2011; internal net sales declined by 0.7 percent. The Latin American business posted internal net sales growth of 6.8 percent in the quarter. Internal net sales of the European business decreased by 3.6 percent. While this reflected the difficult operating environment in the region, it was an improvement from the performance posted in the first quarter of the year. Internal net sales declined by 2 percent in the Asia Pacific segment, primarily as the result of continued weakness in Australia.   Kellogg International's reported second quarter 2012 operating profit declined by 30.9 percent; internal operating profit declined by 22.5 percent, primarily due to results in Europe. 

Interest and Tax

Interest expense was $89 million in the second quarter, including the $27 million loss from hedging associated with the Pringles transaction. The effective tax rate was 25.3 percent. This lower rate was the one-time result of the Pringles acquisition, as a tax liability related to international earnings was eliminated.  

Cash flow

Cash flow, defined as cash from operating activities less capital expenditure, was $525 million for the first half of 2012, an increase of $122 million when compared to results from the first half of 2011.

Kellogg Reaffirms 2012 Net Sales, Operating Profit, and Earnings Per Share Guidance

The company reaffirmed its guidance for full-year internal net sales growth of between two and three percent. In addition, the company continues to expect that full-year internal operating profit will decline between two and four percent. Expectations remain for full-year, as-reported earnings per share to be in a range between $3.18 and $3.30 per share, including the anticipated impact of the Pringles acquisition. 

"We've taken significant actions in the first half of the year and our second quarter performance reflects some of the improvement that has resulted," continued Bryant. "This, and the inclusion of the Pringles business, has given us improved visibility into our outlook, and we remain optimistic regarding the significant, long-term potential of our businesses."

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on August 2, 2012 at 9:30 a.m. Eastern Time. The conference call and accompanying presentation slides will be broadcast live over the Internet at http://investor.kelloggs.com. Analysts and institutional investors may participate in the Q&A session by dialing (888) 338-8373 in the U.S., and (973) 872-3000 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is available at http://investor.kelloggs.com.

About Kellogg Company

Driven to enrich and delight the world through foods and brands that matter, Kellogg Company (NYSE:K) is the world's leading producer of cereal, second largest producer of cookies and crackers and - through the May 2012 acquisition of the iconic Pringles® business - the world's second largest savory snacks company. In addition, Kellogg is a leading producer of frozen foods. Every day, our well-loved brands - produced in 18 countries and marketed in more than 180 countries - nourish families so they can flourish and thrive. With 2011 sales of more than $13 billion, these brands include Cheez-It®, Coco Pops®, Corn Flakes®, Eggo®, Frosted Flakes®, Kashi®, Keebler®, Kellogg's®, Mini-Wheats®, Pop-Tarts®, Pringles®, Rice Krispies®, Special K®, and many more. To learn more about Kellogg Company, including our corporate responsibility initiatives and rich heritage, please visit www.kelloggcompany.com.

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Forward-Looking Statements Disclosure

This news release contains, or incorporates by reference, "forward-looking statements" with projections concerning, among other things, the integration of the Pringles® business, the Company's strategy, and the Company's sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words "expects," "believes," "should," "will," "anticipates," "projects," "estimates," "implies," "can," or words or phrases of similar meaning.

The Company's actual results or activities may differ materially from these predictions. The Company's future results could also be affected by a variety of factors, including the ability to integrate the Pringles® business and the realization of the anticipated benefits from the acquisition in the amounts and at the times expected, the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; labor costs; disruptions or inefficiencies in supply chain; the availability of and interest rates on short-term and long-term financing; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; changes in consumer behavior and preferences; the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability; legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations; the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and other items. 

Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.