Kellogg Company News
For release: January 29, 2004
Analyst/Media John P. Renwick, CFA (269) 961-6365
Contacts: Simon D. Burton, CFA (269) 961-6636
KELLOGG COMPLETES STRONG 2003
BATTLE CREEK, Mich. - Kellogg Company (NYSE: K) today reported that its
fourth-quarter and full-year earnings were at the high end of its previously
increased forecast range. It also reaffirmed its comfort with the high end of
its forecast range for 2004, citing its current momentum and last year's strong
reinvestment in the business.
Reported net earnings for the full year 2003 were $787.1 million, or
$1.92 per diluted share, a 10% increase from last year's $720.9 million, or
$1.75 per share. Excluding $0.02 per share from favorable legal settlements
received in the first quarter of 2002, our EPS growth in 2003 was 11%. Reported
net earnings in the fourth quarter of 2003 were $188.0 million, or $0.46 per
diluted share, compared to $191.0 million or $0.47 per share in the fourth
quarter of 2002. This expected decline was attributable to a significant
increase in brand building investment, as well as the absorption of substantial
asset write-offs and up-front costs related to cost-savings initiatives.
"This was an outstanding year, featuring momentum and reinvestment,"
said Carlos Gutierrez, Kellogg's chairman and chief executive officer. "We
remained focused on our strategy and our financial model. We delivered solid
sales growth in every quarter and across our portfolio. We invested for future
growth by increasing advertising and promotion and absorbed costs related to
several cost-savings projects. We exceeded our initial earnings forecast, and
our strong cash flow was used to dramatically improve our financial flexibility.
All of the above should contribute to dependable, sustainable growth in the
years to come."
Reported net sales in 2003 increased by 6% to $8.8 billion, with fourth
quarter sales growing 8%, to $2.1 billion. Internal net sales growth, which
excludes foreign-currency translation and the impact of divestitures, was 4% for
both periods.
Kellogg USA reported net sales growth of 2% in 2003, and 3% in the
fourth quarter. On an internal basis, which excludes the impact of two small
divestitures, its growth was 3% in 2003, and 4% in the fourth quarter. Retail
cereal sales continued to be strong, increasing by 7% in 2003, and by 9% in the
fourth quarter; this business posted its third consecutive year of increased
share of the ready-to-eat cereal category. Retail snacks' internal sales were
flat for the year and down 3% in the fourth quarter, as good growth in wholesome
snacks was offset by the impact of continued weak cookie sales, the elimination
of numerous products (stock-keeping units), and the discontinuation of a
custom-manufacturing account. All other U.S. businesses collectively posted 3%
internal sales growth in 2003, including a 6% gain in the fourth quarter.
Kellogg International reported net sales growth of 15% in 2003, and 17%
in the fourth quarter. Internal sales growth, which excludes foreign currency
translation, was 5% in 2003, with fourth-quarter growth of 4%. This was led by
Latin America, which posted internal net sales gains of 13% and 15% for the year
and quarter, respectively, thanks to continued growth in cereal and snacks in
Mexico. In Europe, sales were up 3% on an internal basis in 2003, and flat in
the fourth quarter; gains were posted in both periods by the United Kingdom,
which increased its share of the ready-to-eat cereal category by a full
percentage point in 2003. All other international businesses collectively
recorded 4% internal net sales growth for both the full year and the fourth
quarter.
Operating profit of $1.5 billion in 2003 was a 2% increase over 2002,
while it declined by 11%, to $352 million, in the fourth quarter. In both
periods, operating profit was held down by substantial reinvestment for the
future. Advertising and consumer promotion was increased at a double-digit rate
in 2003, and its growth was accelerated during the fourth quarter. In addition,
the Company absorbed substantial asset write-offs and up-front costs related to
productivity initiatives, such as capacity rationalizations in Australia,
Argentina and the U.S., as well as other supply-chain and overhead reductions in
Europe.
As expected, the net earnings impact of these costs and additional
expense related to a repurchase of bonds was partially offset by a reduction in
tax expense, the result of various tax planning initiatives and audit
completions.
Cash flow, defined as cash from operating activities less capital
expenditures, was $961 million in 2003, before the $37 million after-tax impact
of year-end voluntary contributions to benefit plans. The Company used this cash
flow to reduce its debt outstanding by more than $550 million in 2003, including
more than $200 million in the fourth quarter alone.
Kellogg Reaffirms 2004 Outlook
Kellogg reiterated its outlook for full-year EPS for the high-end of
the range $2.05-2.09, toward the upper end of its long-term target of high
single-digit EPS growth. The Company expects to face substantially higher
commodity and benefit costs, continued competitive pressure, and a weak cookie
category. However, management believes virtually all of its businesses are
demonstrating momentum and have strong plans for brand building and innovation.
A combination of operating leverage, mix improvement, and productivity savings
is expected to more than offset the additional costs.
Mr. Gutierrez concluded, "In 2003, we executed well, delivered strong
results, and reinvested for the future. The year was a testament to the focus,
hard work, and dedication of our 25,000 employees. It also underscored our
commitment to delivering sustainable growth for our share owners. I have every
confidence in our ability to deliver again in 2004, and beyond."
About Kellogg Company
With 2003 sales of nearly $9 billion, Kellogg Company is the world's
leading producer of cereal and a leading producer of convenience foods,
including cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat
alternatives, pie crusts, and ice cream cones. The Company's brands include
Kellogg's, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Rice Krispies,
Murray, Austin, Morningstar Farms, Famous Amos, Carr's, Plantation, Ready Crust,
and Kashi. Kellogg products are manufactured in 17 countries and marketed in
more than 180 countries around the world. For more information, visit Kellogg's
web site at http://www.kelloggcompany.com.
Forward-Looking Statements Disclosure
This news release contains forward-looking statements related to
business performance, cash flow, sales, momentum, brand building, innovation,
costs, cost savings, productivity savings, operating leverage, operating profit,
earnings and growth. Actual performance may differ materially from these
statements due to factors related to the substantial amount of indebtedness
incurred to finance the Keebler Foods acquisition (which could, among other
things, hinder the company's ability to adjust rapidly, make the company more
vulnerable to a downturn, and place the Company at a competitive disadvantage to
less-leveraged companies); competitive conditions and their impact; the
effectiveness of advertising, pricing and promotional spending; the success of
productivity improvements and business transitions; the success of innovation
and new product introductions; the recoverability of the carrying value of
goodwill and other intangibles; the availability of and interest rates on
short-term financing; commodity and energy prices and labor costs; actual market
performance of benefit plan trust investments; the levels of spending on systems
initiatives, properties, business opportunities, integration of acquired
businesses; changes in consumer behavior and preferences; U.S. and foreign
economic factors such as interest rates, statutory tax rates, and foreign
currency conversions or unavailability; legal and regulatory factors; business
disruption or other losses from terrorist acts or political unrest; and other
factors.
Kellogg Company and Subsidiaries
CONSOLIDATED EARNINGS
(millions, except per share data)
====================================================================================================================================
Quarter ended Quarter ended Year ended Year ended
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
(Quarterly results are unaudited) 2003 2002 2003 2002
====================================================================================================================================
Net sales $2,135.0 $1,980.7 $8,811.5 $8,304.1
Cost of goods sold 1,188.1 1,066.9 4,898.9 4,569.0
Selling and administrative expense 595.1 520.0 2,368.5 2,227.0
----------------------------------------- ----------------------------------------
Operating profit 351.8 393.8 1,544.1 1,508.1
Interest expense 102.9 94.0 371.4 391.2
Other income (expense), net (5.4) 2.9 (3.2) 27.4
----------------------------------------- ----------------------------------------
Earnings before income taxes 243.5 302.7 1,169.5 1,144.3
Income taxes 55.5 111.7 382.4 423.4
----------------------------------------- ----------------------------------------
Net earnings $188.0 $191.0 $787.1 $720.9
========================================= ========================================
Net earnings per share:
Basic $.46 $.47 $1.93 $1.77
Diluted $.46 $.47 $1.92 $1.75
Dividends per share $.2525 $.2525 $1.0100 $1.0100
========================================= ========================================
Average shares outstanding:
Basic 408.6 407.9 407.9 408.4
========================================= ========================================
Diluted 412.0 410.6 410.5 411.5
========================================= ========================================
Actual shares outstanding at period end 409.7 407.9
========================================
====================================================================================================================================
<FN>
Other income (expense), net includes non-operating items such as interest
income, foreign exchange gains and losses, charitable donations, and gains on
asset sales. Other income (expense), net for 2002, includes a $16.5 credit
($10.2 after tax or $.02 per share) recognized during the first quarter, related
to favorable legal settlements.
</FN>
Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
(millions)
====================================================================================================================================
Quarter ended Quarter ended Year ended Year ended
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
(Quarterly results are unaudited) 2003 2002 2003 2002
====================================================================================================================================
Net sales
United States $1,334.7 $1,293.8 $5,629.3 $5,525.4
Europe 425.7 367.7 1,734.2 1,469.8
Latin America 163.6 150.5 645.7 631.1
All other operating segments* 211.0 168.7 802.3 677.8
------------------------------------------ -----------------------------------------
Consolidated $2,135.0 $1,980.7 $8,811.5 $8,304.1
========================================== =========================================
- ------------------------------------------------------------------------------------------------------------------------------------
Segment operating profit
United States $256.1 $285.4 $1,055.0 $1,073.0
Europe 52.2 63.0 279.8 252.5
Latin America 37.6 41.3 168.5 170.1
All other operating segments* 28.7 35.3 140.0 104.0
Corporate (22.8) (31.2) (99.2) (91.5)
------------------------------------------ -----------------------------------------
Consolidated $351.8 $393.8 $1,544.1 $1,508.1
========================================== =========================================
* Includes Canada, Australia, and Asia.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
=======================================================================================================
Year ended Year ended
Dec. 27, Dec. 28,
2003 2002
=======================================================================================================
Operating activities
Net earnings $787.1 $720.9
Adjustments to reconcile net earnings to
operating cash flows:
Depreciation and amortization 372.8 349.9
Deferred income taxes 74.8 111.2
Other 76.1 67.0
Postretirement benefit plan contributions (184.2) (446.6)
Changes in operating assets and liabilities 44.4 197.5
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,171.0 999.9
- ----------------------------------------------------------------------------------------------------
Investing activities
Additions to properties (247.2) (253.5)
Acquisitions of businesses - (2.2)
Dispositions of businesses 14.0 60.9
Other 14.2 6.0
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (219.0) (188.8)
- ----------------------------------------------------------------------------------------------------
Financing activities
Net issuances (reductions) of notes payable (100.1) (92.4)
Issuances of long-term debt 498.1 -
Reductions of long-term debt (956.0) (439.3)
Net issuances of common stock 121.6 100.9
Common stock repurchases (90.0) (101.0)
Cash dividends (412.4) (412.6)
Other (0.6) -
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (939.4) (944.4)
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 28.0 2.1
- ----------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 40.6 (131.2)
Cash and cash equivalents at beginning of period 100.6 231.8
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $141.2 $100.6
====================================================================================================
====================================================================================================
Supplemental Financial Data:
Cash Flow (operating cash flow less property additions)* $923.8 $746.4
====================================================================================================
<FN>
* We use this non-GAAP measure of cash flow to focus management and investors
on the amount of cash available for debt reduction, dividend distributions,
acquisition opportunities, and share repurchase.
</FN>
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET*
================================================================================================================================
(millions, except per share data) December 27, December 28,
2003 2002
================================================================================================================================
Current assets
Cash and cash equivalents $141.2 $100.6
Accounts receivable, net 754.8 741.0
Inventories:
Raw materials and supplies 185.3 172.2
Finished goods and materials in process 464.5 431.0
Other current assets 251.4 318.6
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 1,797.2 1,763.4
Property, net of accumulated depreciation
of $3,439.3 and $3,012.4 2,780.2 2,840.2
Goodwill 3,098.4 3,106.6
Other intangibles, net of accumulated amortization
of $35.1 and $22.1 2,034.4 2,047.0
Other assets 520.6 462.1
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $10,230.8 $10,219.3
===========================================================================================================================
Current liabilities
Current maturities of long-term debt $578.1 $776.4
Notes payable 320.8 420.9
Accounts payable 703.8 619.0
Accrued advertising and promotion 323.1 309.0
Other current liabilities 840.2 889.6
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,766.0 3,014.9
Long-term debt 4,265.4 4,519.4
Deferred income taxes 1,062.8 986.4
Pension benefits 253.4 334.5
Nonpension postretirement benefits 291.0 329.6
Other liabilities 149.0 139.4
Shareholders' equity
Common stock, $.25 par value 103.8 103.8
Capital in excess of par value 24.5 49.9
Retained earnings 2,247.7 1,873.0
Treasury stock, at cost (203.6) (278.2)
Accumulated other comprehensive income (loss) (729.2) (853.4)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,443.2 895.1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,230.8 $10,219.3
===========================================================================================================================
<FN>
* Condensed from audited financial statements.
</FN>