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| Kellogg Company |
| Financial News Release |
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| Analyst Contact: |
| John Renwick, CFA (269) 961-9050 |
| Jamie Duies, CFA (269) 961-2486 |
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| Media Contact: |
| Kris Bahner, (269) 961-3799 |
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Kellogg Company Reports Third Quarter 2022 Results, Raises Full-Year Outlook
BATTLE CREEK, Mich. - November 3, 2022 - Kellogg Company (NYSE: K) today announced third quarter 2022 results and raised its full-year earnings guidance.
Highlights:
•Another quarter of strong net sales growth, bolstered by positive price/mix, and led by momentum in snacks globally and in noodles and cereal in emerging markets, as well as continued rebound in North America cereal.
•Continued to mitigate the negative impacts on profit of high cost inflation, economy-wide bottlenecks and shortages through productivity and revenue growth management.
•Raised full-year guidance for organic-basis net sales growth, currency-neutral, adjusted operating profit and earnings per share; this reflects recent results, underlying trends, and confidence in its outlook.
•The Company continues to work towards its planned separations of its North America cereal and plant-based businesses.
"We're pleased to report another quarter of better-than-expected financial performance and an increase to our outlook for the year," said Steve Cahillane, Kellogg Company’s Chairman and Chief Executive Officer.
Mr. Cahillane added, "This required navigating effectively through global supply challenges and working to offset cost pressures with productivity and revenue growth management, all while sustaining momentum in snacks and emerging markets, and continuing to recover inventory and share in North America cereal."
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| Financial Summary: | | Quarter ended | | Year-to-date period ended |
| (millions, except per share data) | | October 1, 2022 | | October 2, 2021 | | %
Change | | October 1, 2022 | | October 2, 2021 | | %
Change |
| Reported Net Sales | | $ | 3,946 | | | $ | 3,622 | | | 9.0 | % | | $ | 11,482 | | | $ | 10,761 | | | 6.7 | % |
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| Organic Net Sales * | | $ | 4,108 | | | $ | 3,622 | | | 13.4 | % | | $ | 11,831 | | | $ | 10,761 | | | 9.9 | % |
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| Reported Operating Profit | | $ | 368 | | | $ | 447 | | | (17.6) | % | | $ | 1,300 | | | $ | 1,423 | | | (8.6) | % |
| Adjusted Operating Profit * | | $ | 449 | | | $ | 449 | | | (0.2) | % | | $ | 1,454 | | | $ | 1,443 | | | 0.7 | % |
| Currency-Neutral Adjusted Operating Profit * | | $ | 466 | | | $ | 449 | | | 3.7 | % | | $ | 1,497 | | | $ | 1,443 | | | 3.7 | % |
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| Reported Diluted Earnings Per Share | | $ | 0.90 | | | $ | 0.89 | | | 1.1 | % | | $ | 3.09 | | | $ | 3.07 | | | 0.7 | % |
| Adjusted Diluted Earnings Per Share * | | $ | 1.01 | | | $ | 1.09 | | | (7.3) | % | | $ | 3.29 | | | $ | 3.33 | | | (1.2) | % |
| Currency-Neutral Adjusted Diluted Earnings Per Share * | | $ | 1.06 | | | $ | 1.09 | | | (2.8) | % | | $ | 3.42 | | | $ | 3.33 | | | 2.7 | % |
* Non-GAAP financial measure. See "Non-GAAP Financial Measures" section and "Reconciliation of Non-GAAP Amounts" tables within this release for important information regarding these measures.
Third Quarter Consolidated Results
Kellogg’s third quarter 2022 GAAP (or "reported") net sales increased by 9% year on year, as positive price/mix, sustained momentum in snacks, noodles, and international cereal as well a rebounding North America cereal business more than offset the impacts of price elasticity, halted shipments into Russia, and adverse currency translation. On an organic basis, which excludes the impact of currency, the Company's net sales increased by 13%.
Through the first nine months of the year, Kellogg’s reported net sales increased by 7% as positive price/mix and in-market momentum in snacks, noodles and other, and international cereal more than offset adverse currency translation and the impact on first-quarter shipments of low inventories in North America cereal. On an organic basis, which excludes the impact of currency, the Company's net sales increased by 10%.
Reported operating profit in the third quarter decreased nearly 18% year on year, as the strong net sales growth overcame continued high costs, but was more than offset by unfavorable mark-to-market impacts and adverse currency translation. On an adjusted basis, which excludes mark-to-market and one-time charges, operating profit was flat, and excluding currency translation, it increased by 4%.
Through the first nine months of the year, reported operating profit decreased by 9% year on year, as price/mix growth and net sales momentum in snacks globally and in other international businesses was more than offset by unfavorable mark-to-market impacts, adverse currency translation, and the negative first-quarter impact of low inventories in North America cereal following last year’s fire and strike. On an adjusted basis, which excludes mark-to-market and one-time charges, operating profit increased by 1%, and excluding currency translation it increased by 4% .
Reported earnings per share in the third quarter increased by 1% year on year, as a lower reported effective tax rate and less negative mark-to-market impact more than offset the impact of up-front separation costs and unfavorable foreign currency translation compared to the prior year quarter. On an adjusted basis, which excludes these one-time charges and gains, earnings per share decreased by 8%, and excluding currency translation, adjusted earnings per share decreased year on year by 3%.
Through the first nine months of the year, reported earnings per share increased by 1% year on year, as a lower reported effective tax rate more than offset unfavorable mark-to-market impacts and adverse currency translation. On an adjusted basis, which excludes one-time charges, earnings per share decreased by 1%, and excluding currency translation, earnings per share increased by approximately 3%.
Year-to-date net cash provided by operating activities was $1,180 million, representing an increase over the year-earlier period's $1,145 million. After capital expenditures of $350 million, cash flow, defined as net cash provided by operating activities less capital expenditure, was $830 million through the first nine months of the year, a significant increase from the prior-year period.
Third Quarter Business Performance
Please refer to the segment tables in the back of this document.
Throughout the third quarter and first nine months of the year, the Company continued to execute well in a challenging business environment, marked by unusually high cost inflation and economy-wide bottlenecks and shortages. Led by its snacks brands around the world, and bolstered by price/mix growth stemming from revenue growth management actions, the Company sustained strong, broad-based net sales growth. These revenue growth management actions combined with productivity to mitigate the profit impact of high costs. The Company also preserved financial flexibility through increased generation of cash. Meanwhile, the organization continued to work toward executing the the planned separations of the Company's North America cereal and plant-based foods businesses.
Kellogg North America’s reported net sales in the third quarter increased by 14% year on year, driven by both price/mix and volume growth, and featuring sustained momentum in snacks and continued acceleration in North America cereal as it resumes commercial activity after having had to rebuild inventory following last year's fire and strike. On an organic basis, net sales increased by 14% year on year. Kellogg North America's reported operating profit decreased by 2%, as growth in net sales was more than offset by cost pressures, increased one-time charges, and higher brand-building investment. On an adjusted and currency-neutral adjusted basis, which exclude one-time charges, operating profit increased by 3%.
Through the first nine months of the year, Kellogg North America's reported net sales increased by 8%, as price/mix and momentum in snacks more than offset the negative first-quarter impact low inventories in North America cereal following last year’s fire and strike. On an organic basis, net sales increased by 8%. Kellogg North America's reported operating profit decreased by 3% year on year, as the benefit of price/mix and net sales momentum in snacks was more than offset by higher one-time charges and the negative sales and cost impact of recovering inventories in North America cereal during the first quarter. On an adjusted and currency-neutral adjusted basis, operating profit was flat.
Kellogg Europe's reported net sales decreased 11% year on year in the third quarter, as significantly adverse foreign currency translation and the impact of suspending shipments into Russia more than offset an increase in price/mix across the business and sustained in-market momentum in snacks. On an organic basis, which excludes the impact of foreign currency translation, net sales increased 3%. Kellogg Europe’s reported operating profit decreased by 22% year on year, due to the lapping of exceptionally strong year-earlier growth and to significantly adverse foreign currency translation. On an adjusted basis, operating profit decreased by 20%, and excluding currency it decreased by 9%.
Through the first nine months of the year, Kellogg Europe's reported net sales decreased by 4%, due to significantly adverse currency translation, which more than offset price/mix and net sales momentum in snacks. On an organic basis, net sales increased by 6%. Kellogg Europe’s reported operating profit increased by 1% year on year, despite adverse currency translation and high costs. On an adjusted basis, operating profit increased by 2%, and excluding currency it increased by 11%.
Kellogg Latin America's third quarter reported net sales increased 13% year on year, as price/mix and in-market momentum in snacks and cereal more than offset the impact of adverse foreign currency translation. On an organic basis, net sales increased by 14%. Reported operating profit decreased by 1% year on year, as the increased net sales were more than offset by adverse foreign currency translation and high costs. Adjusted and currency-neutral adjusted operating profit increased by 5% and 6%, respectively.
Through the first nine months of the year, Kellogg Latin America's reported net sales increased by 10% year on year, on increased price/ mix and sustained net sales momentum in snacks. On an organic basis, net sales increased by approximately 10%. Kellogg Latin America's reported operating profit decreased by 6% year on year, as the impact of increased net sales and lower one-time charges was more than offset by high cost inflation. On an adjusted basis, operating profit decreased by 8%, while excluding currency translation it decreased by 6%.
Kellogg Asia Pacific, Middle East and Africa's ("AMEA's") third quarter reported net sales increased by 12% year on year, as price/mix and net sales momentum in snacks, noodles and other, and cereal more than offset the impact of significantly adverse foreign currency translation. On an organic basis, net sales increased by 22%. Kellogg AMEA's reported operating profit increased by 5%, as higher net sales were offset by high cost inflation and adverse currency translation. On an adjusted basis, operating profit increased by 5%, and excluding currency translation it increased by 14%.
Through the first nine months of the year, Kellogg AMEA's reported net sales increased by 12% year on year, as price/mix and net sales momentum in snacks, noodles and other, and cereal more than offset adverse foreign currency translation. On an organic basis, net sales increased by 19%. Kellogg AMEA's reported operating profit increased by 3%, as the impact of increased net sales more than offset high cost inflation and adverse currency translation. On an adjusted basis, operating profit increased 3%, and excluding currency translation it increased nearly 10%.
Kellogg Raises Full-Year Financial Guidance
Reflecting its strong year-to-date results, underlying trends, and confidence in its outlook, Kellogg Company has updated its full-year 2022 guidance as follows:
•Raises its guidance for organic-basis net sales growth to approximately +10%, from its prior guidance of +7-8%. This reflects better-than-expected growth through the most recent quarter, as well as revenue growth management actions and good in-market momentum, particularly in snacks and emerging markets.
•Raises its guidance for adjusted-basis operating profit growth to approximately +6% on a currency-neutral basis, from its prior guidance of +4-5%. This reflects the Company's better-than-expected results in its latest quarter, and incorporates continued high cost inflation, bottlenecks and shortages, and increased brand investment in the second half.
•Raises its guidance for adjusted-basis earnings per share growth to approximately +3% on a currency-neutral basis, from prior guidance of approximately +2%. This reflects the improved operating profit outlook, partially offset by a further reduction in non-operating, non-cash pension income, stemming from a remeasurement that now reflects this year's higher interest rates and sharply lower equity and bond values.
•Updates its expectation for net cash provided by operating activities to be approximately $1.7 billion, with capital expenditure of approximately $0.5 billion, resulting in affirming its guidance for cash flow of approximately $1.2 billion.
Excluded from this guidance are any significant supply chain or other prolonged market disruptions related to the pandemic or the global economy.
Guidance and goals expressed in this press release are on a currency-neutral basis, and adjusted to exclude restructuring charges, mark-to-market adjustments of pensions (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, and other costs impacting comparability. Organic basis also excludes acquisitions, divestitures, and differences in shipping days. Expected net sales, margins, operating profit, and earnings per share are provided on a non-GAAP basis only
because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. Please refer to the "Non-GAAP Financial Measures" section included later in this press release for a further discussion of our use of non-GAAP measures, including quantification of known expected adjustment items. The company will use the term "low single digit" to refer to percent changes of up to 3%, "mid single-digit" to refer to percent changes between 4% and 6%, "high single-digit" to refer to percent changes between 7% up to 10%, and "double-digit" to refer to percent changes of 10% or more.
Conference Call / Webcast
Kellogg will host a conference call to discuss results and outlook on Thursday, November 3, 2022 at 9:30 a.m. Eastern Time. The conference call and accompanying presentation slides will be webcast live over the Internet at http://investor.kelloggs.com. Information regarding the rebroadcast is available at http://investor.kelloggs.com.
About Kellogg Company
At Kellogg Company (NYSE: K), our vision is a good and just world where people are not just fed but fulfilled. We are creating better days and a place at the table for everyone through our trusted food brands. Our beloved brands include Pringles®, Cheez-It®, Special K®, Kellogg's Frosted Flakes®, Pop-Tarts®, Kellogg's Corn Flakes®, Rice Krispies®, Eggo®, Mini-Wheats®, Kashi®, RXBAR®, MorningStar Farms® and more. Net sales in 2021 were nearly $14.2 billion, comprised principally of snacks and convenience foods like cereal, frozen foods, and noodles. As part of our Kellogg's® Better Days ESG strategy, we're addressing the interconnected issues of wellbeing, climate and food security, creating Better Days for 3 billion people by the end of 2030. Visit www.KelloggCompany.com.
Non-GAAP Financial Measures
This filing includes non-GAAP financial measures that we provide to management and investors that exclude certain items that we do not consider part of on-going operations. Items excluded from our non-GAAP financial measures are discussed in the "Significant items impacting comparability" section of this filing. Our management team consistently utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions, including incentive compensation. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors’ understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.
Non-GAAP financial measures used include currency-neutral and organic net sales, adjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted EPS, currency-neutral adjusted gross profit, currency-neutral adjusted gross margin, adjusted interest expense, adjusted other income (expense), adjusted effective income tax rate, net debt and cash flow. We determine currency-neutral results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. These non-GAAP financial measures may not be comparable to similar measures used by other companies.
•Currency-neutral net sales and organic net sales: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of
acquisitions, divestitures, and foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales measures, management intends to provide investors with a meaningful, consistent comparison of net sales performance for the Company and each of our reportable segments for the periods presented. Management uses these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions.
•Adjusted: gross profit, gross margin, operating profit and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the planned separation transactions, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, a gain on interest rate swaps, and other costs impacting comparability resulting in adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.
•Currency-neutral adjusted: gross profit, gross margin, operating profit, and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the planned separation transactions, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, a gain on interest rate swaps, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.
•Adjusted interest expense: We adjust the GAAP financial measure to exclude the effect of a gain on interest rate swaps. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's interest expense, excluding the impact of the items noted above, for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability.
•Adjusted other income (expense): We adjust the GAAP financial measure to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded) and certain equity investments, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our underlying profitability. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's other income (expense), excluding the impact of the items noted above, for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability.
•Adjusted effective income tax rate: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the planned separation transactions, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments, and certain foreign currency
contracts, a gain on interest rate swaps, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our pre-tax income and the related tax effect of those items on our adjusted effective income tax rate, and other impacts to tax expense, including tax reform in the UK and certain foreign valuation allowances. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pre-tax income and tax effect of the items noted above, for the periods presented. Management uses this non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.
•Net debt: Defined as the sum of long-term debt, current maturities of long-term debt and notes payable, less cash and cash equivalents, and marketable securities. With respect to net debt, cash and cash equivalents, and marketable securities are subtracted from the GAAP measure, total debt liabilities, because they could be used to reduce the Company’s debt obligations. Company management and investors use this non-GAAP measure to evaluate changes to the Company's capital structure and credit quality assessment.
•Cash flow: Defined as net cash provided by operating activities reduced by expenditures for property additions. Cash flow does not represent the residual cash flow available for discretionary expenditures. We use this non-GAAP financial measure of cash flow to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases once all of the Company’s business needs and obligations are met. Additionally, certain performance-based compensation includes a component of this non-GAAP measure.
These measures have not been calculated in accordance with GAAP and should not be viewed as a substitute for GAAP reporting measures.
Forward-looking guidance for organic net sales, currency-neutral adjusted operating profit, currency-neutral diluted EPS, and cash flow is included in this press release. Guidance for organic net sales excludes the impact of foreign currency translation, acquisitions, divestitures, and differences in shipping days. Guidance for operating profit excludes the impact of costs related to restructuring programs, mark-to-market adjustments (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), and other items that could affect comparability, and foreign currency translation. Guidance for earnings per share excludes the impact of costs related to restructuring programs, mark-to-market adjustments (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), and other items that could affect comparability, and foreign currency translation. We have provided these non-GAAP measures for future guidance for the same reasons that were outlined above for historical non-GAAP measures.
We are unable to reasonably estimate the potential full-year financial impact of mark-to-market adjustments because these impacts are dependent on future changes in market conditions (interest rates, return on assets, and commodity prices). Similarly, because of volatility in foreign exchange rates and shifts in country mix of our international earnings, we are unable to reasonably estimate the potential full-year financial impact of foreign currency translation.
As a result, these impacts are not included in the guidance provided. Therefore, we are unable to provide a full reconciliation of these non-GAAP measures used in our guidance without unreasonable effort as certain information necessary to calculate such measure on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.
See the table below that outlines the projected impact of certain other items that are excluded from non-GAAP guidance for 2022:
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| Impact of certain items excluded from Non-GAAP guidance: | Net Sales | Operating Profit | Earnings Per Share |
| Separation costs (pre-tax) | | $70-$80M | $0.21-$0.23 |
| Business and portfolio realignment (pre-tax) | | $30-$40M | $0.09-$0.12 |
| Gain related to interest rate swaps (pre-tax) | | | ($0.05) |
| Income tax impact applicable to adjustments, net** | | | ~$0.10 |
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| Currency-neutral adjusted guidance* | | ~6% | ~3% |
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| Organic guidance* | ~10% | | |
* 2022 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. These items for 2022 include impacts of mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments, and certain foreign currency contracts. The Company is providing quantification of known adjustment items where available.
** Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.
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| Reconciliation of Non-GAAP amounts - Cash Flow Guidance | |
| (billions) | |
| Full Year 2022 |
| Net cash provided by (used in) operating activities | ~$1.7 |
| Additions to properties | ~($0.5) |
| Cash Flow | ~$1.2 |
Forward-Looking Statements Disclosure
This news release contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the anticipated separation of the Company's North American cereal and plant-based foods businesses, the Company’s restructuring programs, the integration of acquired businesses, 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, charges, rates of return, brand building, return on invested capital (ROIC), working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, 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 be affected by a variety of other factors, including the ability to effect the separation transactions and to meet the conditions related thereto; the ability of the separated companies to each succeed as a standalone publicly traded company; potential uncertainty during the pendency of the separation transactions that could affect the Company’s financial performance; the possibility that the separation transactions will not be completed within the anticipated time period or at all, including with respect to the potential sale of our plant-based business; the possibility that the separation transactions will not achieve their intended benefits; the possibility of disruption, including changes to existing business relationships, disputes, litigation or unanticipated costs in connection with the separation transactions; uncertainty of the expected financial performance of the Company or the separated companies following completion of the separation transactions; negative effects of the announcement or pendency of the separation transactions on the market price of the Company’s securities and/or on the financial performance of the Company; uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions
of the COVID-19 outbreak, the current, and uncertain future, impact of the COVID-19 outbreak on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), and cash flows and liquidity, the residual impact of the 12-week labor strike at the Company's U.S. cereal plants and a fire at one of the plants, the impact of the war in Ukraine including the potential for broader economic disruption, the ability to implement restructurings as planned, whether the expected amount of costs associated with restructurings will differ from forecasts, whether the Company will be able to realize the anticipated benefits from restructurings in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions 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, transportation costs, 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.
Additional information concerning these and other factors can be found in the Company's filings with the Securities and Exchange Commission, including the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.
[Kellogg Company Financial News]
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter ended | | Year-to-date period ended |
| (Results are unaudited) | | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Net sales | | $ | 3,946 | | | $ | 3,622 | | | $ | 11,482 | | | $ | 10,761 | |
| Cost of goods sold | | 2,793 | | | 2,457 | | | 8,027 | | | 7,206 | |
| Selling, general and administrative expense | | 785 | | | 718 | | | 2,155 | | | 2,132 | |
| Operating profit | | 368 | | | 447 | | | 1,300 | | | 1,423 | |
| Interest expense | | 39 | | | 55 | | | 149 | | | 172 | |
| Other income (expense), net | | 54 | | | — | | | 188 | | | 155 | |
| Income before income taxes | | 383 | | | 392 | | | 1,339 | | | 1,406 | |
| Income taxes | | 74 | | | 92 | | | 283 | | | 345 | |
| Earnings (loss) from unconsolidated entities | | 3 | | | 5 | | | 6 | | | — | |
| Net income | | 312 | | | 305 | | | 1,062 | | | 1,061 | |
| Net income (loss) attributable to noncontrolling interests | | 2 | | | (2) | | | 4 | | | 6 | |
| Net income attributable to Kellogg Company | | $ | 310 | | | $ | 307 | | | $ | 1,058 | | | $ | 1,055 | |
| Per share amounts: | | | | | | | | |
| Basic earnings | | $ | 0.91 | | | $ | 0.90 | | | $ | 3.11 | | | $ | 3.09 | |
| Diluted earnings | | $ | 0.90 | | | $ | 0.89 | | | $ | 3.09 | | | $ | 3.07 | |
| | | | | | | | |
| Average shares outstanding: | | | | | | | | |
| Basic | | 341 | | | 341 | | | 340 | | | 341 | |
| Diluted | | 344 | | | 343 | | | 343 | | | 343 | |
| Actual shares outstanding at period end | | | | | | 341 | | | 341 | |
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
| | | | | | | | | | | | | | |
| | | Year-to-date period ended |
| (unaudited) | | October 1,
2022 | | October 2,
2021 |
| Operating activities | | | | |
| Net income | | $ | 1,062 | | | $ | 1,061 | |
| Adjustments to reconcile net income to operating cash flows: | | | | |
| Depreciation and amortization | | 351 | | | 346 | |
| Postretirement benefit plan expense (benefit) | | (189) | | | (112) | |
| Deferred income taxes | | 26 | | | 4 | |
| Stock compensation | | 56 | | | 50 | |
| | | | |
| | | | |
| Other | | (16) | | | (29) | |
| Postretirement benefit plan contributions | | (17) | | | (15) | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | |
| Trade receivables | | (526) | | | (196) | |
| Inventories | | (343) | | | (103) | |
| Accounts payable | | 501 | | | 198 | |
| All other current assets and liabilities | | 275 | | | (59) | |
| Net cash provided by (used in) operating activities | | 1,180 | | | 1,145 | |
| Investing activities | | | | |
| Additions to properties | | (350) | | | (408) | |
| Issuance of notes receivable | | — | | | (29) | |
| Repayments from notes receivable | | 10 | | | 28 | |
| | | | |
| | | | |
| Investments in unconsolidated entities | | — | | | (10) | |
| | | | |
| | | | |
| Purchases of available for sale securities | | (15) | | | (56) | |
| Sales of available for sale securities | | 14 | | | 69 | |
| Settlement of net investment hedges | | 37 | | | 10 | |
| Collateral paid on derivatives | | (10) | | | (9) | |
| Other | | 2 | | | 20 | |
| Net cash provided by (used in) investing activities | | (312) | | | (385) | |
| Financing activities | | | | |
| Net issuances (reductions) of notes payable | | 37 | | | 343 | |
| Issuances of long-term debt | | — | | | 361 | |
| Reductions of long-term debt | | (33) | | | (646) | |
| | | | |
| Net issuances of common stock | | 244 | | | 50 | |
| Common stock repurchases | | (300) | | | (240) | |
| Cash dividends | | (596) | | | (590) | |
| | | | |
| Other | | (17) | | | (18) | |
| Net cash provided by (used in) financing activities | | (665) | | | (740) | |
| Effect of exchange rate changes on cash and cash equivalents | | (116) | | | (15) | |
| Increase (decrease) in cash and cash equivalents | | 87 | | | 5 | |
| Cash and cash equivalents at beginning of period | | 286 | | | 435 | |
| Cash and cash equivalents at end of period | | $ | 373 | | | $ | 440 | |
| | | | |
| Kellogg Defined Cash Flow: | | | | |
| Net cash provided by (used in) operating activities | | $ | 1,180 | | | $ | 1,145 | |
| Additions to properties | | (350) | | | (408) | |
| Cash flow (operating cash flow less property additions) (a) | | $ | 830 | | | $ | 737 | |
| | | | |
(a) Cash flow is defined as net cash provided by operating activities less capital expenditures. We use this non-GAAP financial measure to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities and share repurchase.
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
| | | | | | | | | | | | | | |
| | October 1,
2022 | | January 1,
2022 |
| | (unaudited) | | * |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 373 | | | $ | 286 | |
| Accounts receivable, net | | 1,985 | | | 1,489 | |
| Inventories | | 1,682 | | | 1,398 | |
| Other current assets | | 404 | | | 221 | |
| Total current assets | | 4,444 | | | 3,394 | |
| Property, net | | 3,564 | | | 3,827 | |
| Operating lease right-of-use assets | | 608 | | | 640 | |
| Goodwill | | 5,691 | | | 5,771 | |
| Other intangibles, net | | 2,302 | | | 2,409 | |
| Investments in unconsolidated entities | | 427 | | | 424 | |
| Other assets | | 1,980 | | | 1,713 | |
| Total assets | | $ | 19,016 | | | $ | 18,178 | |
| Current liabilities | | | | |
| Current maturities of long-term debt | | $ | 816 | | | $ | 712 | |
| Notes payable | | 174 | | | 137 | |
| Accounts payable | | 2,871 | | | 2,573 | |
| Current operating lease liabilities | | 111 | | | 116 | |
| Accrued advertising and promotion | | 813 | | | 714 | |
| Accrued salaries and wages | | 317 | | | 300 | |
| Other current liabilities | | 931 | | | 763 | |
| Total current liabilities | | 6,033 | | | 5,315 | |
| Long-term debt | | 5,697 | | | 6,262 | |
| Operating lease liabilities | | 478 | | | 502 | |
| Deferred income taxes | | 923 | | | 722 | |
| Pension liability | | 603 | | | 706 | |
| Other liabilities | | 544 | | | 456 | |
| Commitments and contingencies | | | | |
| Equity | | | | |
| Common stock, $.25 par value | | 105 | | | 105 | |
| Capital in excess of par value | | 1,027 | | | 1,023 | |
| Retained earnings | | 9,499 | | | 9,028 | |
| Treasury stock, at cost | | (4,750) | | | (4,715) | |
| Accumulated other comprehensive income (loss) | | (1,598) | | | (1,721) | |
| Total Kellogg Company equity | | 4,283 | | | 3,720 | |
| Noncontrolling interests | | 455 | | | 495 | |
| Total equity | | 4,738 | | | 4,215 | |
| Total liabilities and equity | | $ | 19,016 | | | $ | 18,178 | |
* Condensed from audited financial statements.
Kellogg Company and Subsidiaries
Adjustments to Reconcile Reported Results to Currency-Neutral Adjusted Results
(millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended October 1, 2022 |
| (Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Interest expense | Other income (expense) | Income taxes | | Net income (loss) attributable to Kellogg | Per share amount: Diluted |
| Mark-to-market (pre-tax) | $ | 60 | | $ | (2) | | $ | (58) | | $ | — | | $ | 15 | | $ | — | | | $ | (43) | | $ | (0.13) | |
| Separation costs (pre-tax) | — | | 18 | | (18) | | — | | — | | — | | | (18) | | (0.05) | |
| Business and portfolio realignment (pre-tax) | 2 | | 2 | | (4) | | — | | — | | — | | | (4) | | (0.01) | |
| Gain related to interest rate swaps (pre-tax) | — | | — | | — | | (18) | | — | | — | | | 18 | | 0.05 | |
| Income tax impact applicable to adjustments, net* | — | | — | | — | | — | | — | | (11) | | | 11 | | 0.03 | |
| | | | | | | | | |
| Foreign currency impact | (115) | | (29) | | (18) | | (1) | | (3) | | (1) | | | (19) | | (0.05) | |
| Adjustments to adjusted basis | $ | (53) | | $ | (11) | | $ | (98) | | $ | (19) | | $ | 12 | | $ | (12) | | | $ | (55) | | $ | (0.16) | |
| | | | | | | | | |
| Quarter ended October 2, 2021 |
| (Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Interest expense | Other income (expense) | Income taxes | | Net income (loss) attributable to Kellogg | Per share amount: Diluted |
| Mark-to-market (pre-tax) | $ | (4) | | $ | — | | $ | 4 | | $ | — | | $ | (63) | | $ | — | | | $ | (59) | | $ | (0.17) | |
| | | | | | | | | |
| | | | | | | | | |
| Business and portfolio realignment (pre-tax) | 6 | | — | | (6) | | — | | — | | — | | | (6) | | (0.02) | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax impact applicable to adjustments, net* | — | | — | | — | | — | | — | | (17) | | | 17 | | 0.05 | |
| Foreign valuation allowance | — | | — | | — | | — | | — | | 20 | | | (20) | | (0.06) | |
| Adjustments to adjusted basis | $ | 2 | | $ | — | | $ | (2) | | $ | — | | $ | (63) | | $ | 3 | | | $ | (68) | | $ | (0.20) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year-to-date period ended October 1, 2022 |
| (Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Interest expense | Other income (expense) | Income taxes | | Net income (loss) attributable to Kellogg | Per share amount: Diluted |
| Mark-to-market (pre-tax) | $ | 120 | | $ | (6) | | $ | (114) | | $ | — | | $ | 45 | | $ | — | | | $ | (69) | | $ | (0.20) | |
| Separation costs (pre-tax) | — | | 22 | | (22) | | — | | — | | — | | | (22) | | (0.06) | |
| Business and portfolio realignment (pre-tax) | 9 | | 9 | | (18) | | — | | — | | — | | | (18) | | (0.05) | |
| Gain related to interest rate swaps (pre-tax) | — | | — | | — | | (18) | | — | | — | | | 18 | | 0.05 | |
| Income tax impact applicable to adjustments, net* | — | | — | | — | | — | | — | | (22) | | | 22 | | 0.06 | |
| | | | | | | | | |
| | | | | | | | | |
| Foreign currency impact | (243) | | (61) | | (43) | | (3) | | (7) | | (3) | | | (45) | | (0.13) | |
| Adjustments to adjusted basis | $ | (115) | | $ | (37) | | $ | (197) | | $ | (20) | | $ | 38 | | $ | (25) | | | $ | (114) | | $ | (0.33) | |
| | | | | | | | | |
| Year-to-date period ended October 2, 2021 |
| (Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Interest Expense | Other income (expense) | Income taxes | | Net income (loss) attributable to Kellogg | Per share amount: Diluted |
| Mark-to-market (pre-tax) | $ | 9 | | $ | (7) | | $ | (2) | | $ | — | | $ | (43) | | $ | — | | | $ | (45) | | $ | (0.13) | |
| | | | | | | | | |
| | | | | | | | | |
| Business and portfolio realignment (pre-tax) | 8 | | 10 | | (19) | | — | | — | | — | | | (19) | | (0.05) | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax impact applicable to adjustments, net* | — | | — | | — | | — | | — | | (16) | | | 16 | | 0.05 | |
| UK tax rate change | — | | — | | — | | — | | — | | 23 | | | (23) | | (0.07) | |
| Foreign valuation allowance | — | | — | | — | | — | | — | | 20 | | | (20) | | (0.06) | |
| Adjustments to adjusted basis | $ | 17 | | $ | 3 | | $ | (20) | | $ | — | | $ | (43) | | $ | 26 | | | $ | (90) | | $ | (0.26) | |
Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
*Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Net Sales to Organic Net Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended October 1, 2022 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported net sales | | $ | 2,338 | | | $ | 562 | | | $ | 283 | | | $ | 767 | | | $ | (3) | | | $ | 3,946 | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| Foreign currency impact | | (7) | | | (86) | | | (3) | | | (65) | | | — | | | (162) | |
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| Organic net sales | | $ | 2,345 | | | $ | 648 | | | $ | 286 | | | $ | 832 | | | $ | (3) | | | $ | 4,108 | |
| | | | | | | | | | | | |
| Quarter ended October 2, 2021 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported net sales | | $ | 2,055 | | | $ | 631 | | | $ | 252 | | | $ | 683 | | | $ | — | | | $ | 3,622 | |
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| % change - 2022 vs. 2021: | | | | | | | | | | | | |
| Reported growth | | 13.7 | % | | (10.9) | % | | 12.6 | % | | 12.2 | % | | — | % | | 9.0 | % |
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| Foreign currency impact | | (0.4) | % | | (13.6) | % | | (1.1) | % | | (9.6) | % | | — | % | | (4.4) | % |
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| Organic growth | | 14.1 | % | | 2.7 | % | | 13.7 | % | | 21.8 | % | | — | % | | 13.4 | % |
| Volume (tonnage) | | 1.5 | % | | (8.2) | % | | (4.3) | % | | (4.0) | % | | — | % | | (2.3) | % |
| Pricing/mix | | 12.6 | % | | 10.9 | % | | 18.0 | % | | 25.8 | % | | — | % | | 15.7 | % |
Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year-to-date period ended October 1, 2022 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported net sales | | $ | 6,696 | | | $ | 1,749 | | | $ | 826 | | | $ | 2,217 | | | $ | (6) | | | $ | 11,482 | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| Foreign currency impact | | (15) | | | (189) | | | 1 | | | (145) | | | — | | | (348) | |
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| Organic net sales | | $ | 6,711 | | | $ | 1,938 | | | $ | 826 | | | $ | 2,362 | | | $ | (6) | | | $ | 11,831 | |
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| Year-to-date period ended October 2, 2021 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported net sales | | $ | 6,199 | | | $ | 1,827 | | | $ | 753 | | | $ | 1,981 | | | $ | — | | | $ | 10,761 | |
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| % change - 2022 vs. 2021: | | | | | | | | | | | | |
| Reported growth | | 8.1 | % | | (4.3) | % | | 9.7 | % | | 11.9 | % | | — | % | | 6.7 | % |
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| Foreign currency impact | | (0.2) | % | | (10.4) | % | | 0.1 | % | | (7.3) | % | | — | % | | (3.2) | % |
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| Organic growth | | 8.3 | % | | 6.1 | % | | 9.6 | % | | 19.2 | % | | — | % | | 9.9 | % |
| Volume (tonnage) | | (1.9) | % | | (4.2) | % | | (5.4) | % | | (3.8) | % | | — | % | | (3.2) | % |
| Pricing/mix | | 10.2 | % | | 10.3 | % | | 15.0 | % | | 23.0 | % | | — | % | | 13.1 | % |
Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Gross Profit to Currency-Neutral Adjusted Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter ended | | Year-to-date period ended |
| | | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Reported gross profit | | $ | 1,153 | | | $ | 1,165 | | | $ | 3,455 | | | $ | 3,554 | |
| Mark-to-market | | (60) | | | 4 | | | (120) | | | (9) | |
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| | | | | | | | |
| Business and portfolio realignment | | (2) | | | (6) | | | (9) | | | (8) | |
| | | | | | | | |
| Adjusted gross profit | | 1,215 | | | 1,167 | | | 3,584 | | | 3,571 | |
| Foreign currency impact | | (47) | | | — | | | (105) | | | — | |
| Currency-neutral adjusted gross profit | | $ | 1,262 | | | $ | 1,167 | | | $ | 3,689 | | | $ | 3,571 | |
Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Gross Margin to Currency-Neutral Adjusted Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter ended | | Year-to-date period ended |
| | | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Reported gross margin | | 29.2 | % | | 32.1 | % | | 30.1 | % | | 33.0 | % |
| Mark-to-market | | (1.5) | % | | 0.1 | % | | (1.0) | % | | (0.1) | % |
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| Business and portfolio realignment | | (0.1) | % | | (0.2) | % | | (0.1) | % | | (0.1) | % |
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| Adjusted gross margin | | 30.8 | % | | 32.2 | % | | 31.2 | % | | 33.2 | % |
| Foreign currency impact | | 0.1 | % | | — | % | | — | % | | — | % |
| Currency-neutral adjusted gross margin | | 30.7 | % | | 32.2 | % | | 31.2 | % | | 33.2 | % |
Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Adjusted Operating Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended October 1, 2022 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported operating profit | | $ | 322 | | | $ | 75 | | | $ | 28 | | | $ | 64 | | | $ | (120) | | | $ | 368 | |
| Mark-to-market | | — | | | — | | | (1) | | | — | | | (58) | | | (58) | |
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| Separation costs | | (18) | | | — | | | — | | | — | | | — | | | (18) | |
| Business and portfolio realignment | | (3) | | | — | | | — | | | — | | | (1) | | | (4) | |
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| Adjusted operating profit | | $ | 342 | | | $ | 76 | | | $ | 29 | | | $ | 64 | | | $ | (62) | | | $ | 449 | |
| Foreign currency impact | | (1) | | | (11) | | | — | | | (5) | | | — | | | (18) | |
| Currency-neutral adjusted operating profit | | $ | 343 | | | $ | 86 | | | $ | 30 | | | $ | 69 | | | $ | (62) | | | $ | 466 | |
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| Quarter ended October 2, 2021 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported operating profit | | $ | 328 | | | $ | 96 | | | $ | 29 | | | $ | 60 | | | $ | (66) | | | $ | 447 | |
| Mark-to-market | | — | | | — | | | 1 | | | — | | | 3 | | | 4 | |
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| Business and portfolio realignment | | (6) | | | 2 | | | — | | | — | | | (1) | | | (6) | |
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| Adjusted operating profit | | $ | 334 | | | $ | 94 | | | $ | 28 | | | $ | 60 | | | $ | (67) | | | $ | 449 | |
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| % change - 2022 vs. 2021: | | | | | | | | | | | | |
| Reported growth | | (1.9) | % | | (21.7) | % | | (1.2) | % | | 5.3 | % | | (82.5) | % | | (17.6) | % |
| Mark-to-market | | — | % | | — | % | | (6.7) | % | | — | % | | (91.0) | % | | (13.9) | % |
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| Separation costs | | (5.4) | % | | — | % | | — | % | | — | % | | — | % | | (3.9) | % |
| Business and portfolio realignment | | 1.0 | % | | (1.9) | % | | 0.8 | % | | — | % | | 1.0 | % | | 0.4 | % |
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| Adjusted growth | | 2.5 | % | | (19.8) | % | | 4.7 | % | | 5.3 | % | | 7.5 | % | | (0.2) | % |
| Foreign currency impact | | (0.2) | % | | (11.3) | % | | (1.7) | % | | (8.9) | % | | (0.5) | % | | (3.9) | % |
| Currency-neutral adjusted growth | | 2.7 | % | | (8.5) | % | | 6.4 | % | | 14.2 | % | | 8.0 | % | | 3.7 | % |
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Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Adjusted Operating Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year-to-date period ended October 1, 2022 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported operating profit | | $ | 1,043 | | | $ | 280 | | | $ | 82 | | | $ | 192 | | | $ | (296) | | | $ | 1,300 | |
| Mark-to-market | | — | | | — | | | (2) | | | — | | | (113) | | | (114) | |
| | | | | | | | | | | | |
| Separation costs | | (22) | | | — | | | — | | | — | | | — | | | (22) | |
| Business and portfolio realignment | | (15) | | | — | | | — | | | — | | | (2) | | | (18) | |
| | | | | | | | | | | | |
| Adjusted operating profit | | $ | 1,080 | | | $ | 280 | | | $ | 84 | | | $ | 192 | | | $ | (182) | | | $ | 1,454 | |
| Foreign currency impact | | (2) | | | (27) | | | (2) | | | (12) | | | (1) | | | (43) | |
| Currency-neutral adjusted operating profit | | $ | 1,082 | | | $ | 307 | | | $ | 86 | | | $ | 204 | | | $ | (181) | | | $ | 1,497 | |
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| Year-to-date period ended October 2, 2021 | | | | | | | | | | | | |
| (millions) | | North America | | Europe | | Latin
America | | AMEA | | Corporate | | Kellogg
Consolidated |
| Reported operating profit | | $ | 1,070 | | | $ | 277 | | | $ | 87 | | | $ | 186 | | | $ | (198) | | | $ | 1,423 | |
| Mark-to-market | | — | | | — | | | 1 | | | — | | | (2) | | | (2) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Business and portfolio realignment | | (12) | | | 2 | | | (4) | | | — | | | (4) | | | (19) | |
| | | | | | | | | | | | |
| Adjusted operating profit | | $ | 1,082 | | | $ | 275 | | | $ | 91 | | | $ | 186 | | | $ | (191) | | | $ | 1,443 | |
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| % change - 2022 vs. 2021: | | | | | | | | | | | | |
| Reported growth | | (2.5) | % | | 0.8 | % | | (6.3) | % | | 3.1 | % | | (49.6) | % | | (8.6) | % |
| Mark-to-market | | — | % | | — | % | | (2.4) | % | | — | % | | (55.8) | % | | (7.9) | % |
| | | | | | | | | | | | |
| Separation costs | | (2.0) | % | | — | % | | — | % | | — | % | | — | % | | (1.5) | % |
| Business and portfolio realignment | | (0.3) | % | | (0.8) | % | | 4.0 | % | | 0.1 | % | | 1.2 | % | | 0.1 | % |
| | | | | | | | | | | | |
| Adjusted growth | | (0.2) | % | | 1.6 | % | | (7.9) | % | | 3.0 | % | | 5.0 | % | | 0.7 | % |
| Foreign currency impact | | (0.1) | % | | (9.7) | % | | (2.3) | % | | (6.7) | % | | (0.3) | % | | (3.0) | % |
| Currency-neutral adjusted growth | | (0.1) | % | | 11.3 | % | | (5.6) | % | | 9.7 | % | | 5.3 | % | | 3.7 | % |
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Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Interest Expense to Adjusted Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended | | Year-to-date period ended |
| | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Reported interest expense | $ | 39 | | | $ | 55 | | | $ | 149 | | | $ | 172 | |
| Gain related to interest rate swaps | (18) | | | — | | | (18) | | | — | |
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| Adjusted interest expense | $ | 56 | | | $ | 55 | | | $ | 166 | | | $ | 172 | |
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Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Other Income (Expense) to Adjusted Other Income (Expense)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended | | Year-to-date period ended |
| | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Reported other income (expense) | $ | 54 | | | $ | — | | | $ | 188 | | | $ | 155 | |
| Mark-to-market | 15 | | | (63) | | | 45 | | | (43) | |
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| Adjusted other income (expense) | $ | 38 | | | $ | 63 | | | $ | 143 | | | $ | 198 | |
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Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Income Taxes to Adjusted Income Taxes and Reported Effective Tax Rate to Adjusted Effective Tax Rate
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter ended | | Year-to-date period ended |
| | | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Reported income taxes | | $ | 74 | | | $ | 92 | | | $ | 283 | | | $ | 345 | |
| Mark-to-market | | (11) | | | (16) | | | (16) | | | (12) | |
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| Separation costs | | (4) | | | — | | | (5) | | | — | |
| Business and portfolio realignment | | — | | | (1) | | | (6) | | | (5) | |
| | | | | | | | |
| Gain related to interest rate swaps | | 5 | | | — | | | 5 | | | — | |
| Foreign valuation allowance | | — | | | 20 | | | — | | | 20 | |
| UK tax rate change | | — | | | — | | | — | | | 23 | |
| | | | | | | | |
| Adjusted income taxes | | $ | 85 | | | $ | 89 | | | $ | 305 | | | $ | 318 | |
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| Reported effective tax rate | | 19.2 | % | | 23.5 | % | | 21.1 | % | | 24.5 | % |
| Mark-to-market | | (0.7) | % | | (0.4) | % | | (0.1) | % | | (0.1) | % |
| | | | | | | | |
| Separation costs | | (0.2) | % | | — | % | | (0.1) | % | | — | % |
| Business and portfolio realignment | | — | % | | (0.1) | % | | (0.1) | % | | — | % |
| | | | | | | | |
| Gain related to interest rate swaps | | 0.3 | % | | — | % | | 0.1 | % | | — | % |
| Foreign valuation allowance | | — | % | | 4.4 | % | | — | % | | 1.4 | % |
| UK tax rate change | | — | % | | — | % | | — | % | | 1.6 | % |
| | | | | | | | |
| Adjusted effective tax rate | | 19.7 | % | | 19.5 | % | | 21.3 | % | | 21.6 | % |
Note: Tables may not foot due to rounding
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Diluted Earnings Per Share to Currency-Neutral Adjusted Diluted Earnings Per Share
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended | | Year-to-date period ended |
| | October 1,
2022 | | October 2,
2021 | | October 1,
2022 | | October 2,
2021 |
| Reported EPS | $ | 0.90 | | | $ | 0.89 | | | $ | 3.09 | | | $ | 3.07 | |
| Mark-to-market (pre-tax) | (0.13) | | | (0.17) | | | (0.20) | | | (0.13) | |
| | | | | | | |
| Separation costs (pre-tax) | (0.05) | | | — | | | (0.06) | | | — | |
| Business and portfolio realignment (pre-tax) | (0.01) | | | (0.02) | | | (0.05) | | | (0.05) | |
| | | | | | | |
| Gain related to interest rate swaps (pre-tax) | 0.05 | | | — | | | 0.05 | | | — | |
| Income tax impact applicable to adjustments, net* | 0.03 | | | 0.05 | | | 0.06 | | | 0.05 | |
| Foreign valuation allowance | — | | | (0.06) | | | — | | | (0.06) | |
| UK tax rate change | — | | | — | | | — | | | (0.07) | |
| | | | | | | |
| Adjusted EPS | $ | 1.01 | | | $ | 1.09 | | | $ | 3.29 | | | $ | 3.33 | |
| Foreign currency impact | (0.05) | | | — | | | (0.13) | | | — | |
| Currency-neutral adjusted EPS | $ | 1.06 | | | $ | 1.09 | | | $ | 3.42 | | | $ | 3.33 | |
| Currency-neutral adjusted EPS growth | (2.8) | % | | | | 2.7 | % | | |
Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
*Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Net Sales Growth to Currency-Neutral Net Sales Growth
| | | | | | | | | | | | | | | |
| Net sales % change - third quarter 2022 vs. 2021: | | | | | |
| Reported Net Sales | Foreign Currency | | | Organic Net Sales | | |
| North America | | | | | | | |
| Snacks | 17.9 | % | (0.3) | % | | | 18.2 | % | | |
| Cereal | 11.4 | % | (0.6) | % | | | 12.0 | % | | |
| Frozen | 1.3 | % | (0.3) | % | | | 1.6 | % | | |
| | | | | | | |
| Europe | | | | | | | |
| Snacks | (10.3) | % | (13.6) | % | | | 3.3 | % | | |
| Cereal | (11.6) | % | (13.7) | % | | | 2.1 | % | | |
| | | | | | | |
| Latin America | | | | | | | |
| Snacks | 12.8 | % | (0.5) | % | | | 13.3 | % | | |
| Cereal | 12.2 | % | (1.5) | % | | | 13.7 | % | | |
| | | | | | | |
| AMEA | | | | | | | |
| Snacks | 33.6 | % | (8.6) | % | | | 42.2 | % | | |
| Cereal | (4.8) | % | (12.1) | % | | | 7.3 | % | | |
| Noodles and other | 16.1 | % | (8.1) | % | | | 24.2 | % | | |
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Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Net Sales Growth to Currency-Neutral Net Sales Growth
| | | | | | | | | | | | | | | |
| | | | | | | |
| Net sales % change - third quarter year-to-date 2022 vs. 2021: | | | | | |
| Reported Net Sales | Foreign Currency | | | Organic Net Sales | | |
| North America | | | | | | | |
| Snacks | 13.5 | % | (0.2) | % | | | 13.7 | % | | |
| Cereal | 2.5 | % | (0.4) | % | | | 2.9 | % | | |
| Frozen | (1.7) | % | (0.2) | % | | | (1.5) | % | | |
| Europe | | | | | | | |
| Snacks | 0.2 | % | (10.6) | % | | | 10.8 | % | | |
| Cereal | (8.6) | % | (10.1) | % | | | 1.5 | % | | |
| Latin America | | | | | | | |
| Snacks | 22.8 | % | 2.3 | % | | | 20.5 | % | | |
| Cereal | 2.6 | % | (1.0) | % | | | 3.6 | % | | |
| AMEA | | | | | | | |
| Snacks | 23.2 | % | (6.4) | % | | | 29.6 | % | | |
| Cereal | (3.7) | % | (9.7) | % | | | 6.0 | % | | |
| Noodles and other | 19.1 | % | (5.8) | % | | | 24.9 | % | | |
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Net Debt
| | | | | | | | | | | | | | | | |
| | | | |
| (millions, unaudited) | | October 1,
2022 | | October 2,
2021 | | |
| Notes payable | | $ | 174 | | | $ | 497 | | | |
| Current maturities of long-term debt | | 816 | | | 16 | | | |
| Long-term debt | | 5,697 | | | 7,020 | | | |
| Total debt liabilities | | 6,687 | | | 7,533 | | | |
| Less: | | | | | | |
| Cash and cash equivalents | | (373) | | | (440) | | | |
| | | | | | |
| Net debt | | $ | 6,314 | | | $ | 7,093 | | | |
Significant items impacting comparability
Mark-to-market
We recognize mark-to-market adjustments for pension and postretirement benefit plans, commodity contracts, and certain foreign currency contracts as incurred. Actuarial gains/losses for pension plans are recognized in the year they occur. Mark-to-market gains/losses for certain equity investments are recorded based on observable price changes. Changes between contract and market prices for commodity contracts and certain foreign currency contracts result in gains/losses that are recognized in the quarter they occur. We recorded a pre-tax mark-to-market loss of $43 million and $69 million for the quarter and year-to-date periods ended October 1, 2022, respectively. Included within the aforementioned was a pre-tax mark-to-market benefit for pension plans of $15 million and $46 million for the quarter and year-to-date periods ended October 1, 2022, respectively. Additionally, we recorded a pre-tax mark-to-market expense of $59 million and $45 million for the quarter and year-to-date periods ended October 2, 2021, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $83 million and $63 million for the quarter and year-to-date periods ended October 2, 2021, respectively.
Separation costs
The Company continues to work towards its planned separations of its North America cereal and plant-based businesses. As a result, we incurred pre-tax charges related to these planned separations, primarily related to legal and consulting costs, of $18 million and $22 million for the quarter and year-to-date periods ended October 1, 2022, respectively.
Business and portfolio realignment
One-time costs related to reorganizations in support of our Deploy for Growth priorities and a reshaped portfolio; investments in enhancing capabilities prioritized by our Deploy for Growth strategy; and completed and prospective divestitures and acquisitions. As a result, we incurred pre-tax charges, primarily related to reorganizations, of $4 million and $18 million for the quarter and year-to-date periods ended October 1, 2022, respectively. We also recorded pre-tax charges of $6 million and $19 million for the quarter ended October 2, 2021, respectively.
Gain related to interest rate swaps
During the third quarter of 2022, the Company recognized a pre-tax gain of $18 million in interest expense related to a portion of certain forward-starting interest rate swaps no longer designated as cash flow hedges due to changes in forecasted debt issuance.
Foreign valuation allowance
During the third quarter of 2021, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance of $20 million was recorded.
UK tax rate change
During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent and required us to re-value our net UK deferred tax liability balance to reflect this higher rate.
Foreign currency translation
We evaluate the operating results of our business on a currency-neutral basis. We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
