Kellogg Company News
For release: July 26, 2004
Contact: Simon D. Burton, CFA (269) 961-6636
KELLOGG ANNOUNCES 14% EPS GROWTH DUE TO STRONG MOMENTUM
BATTLE CREEK, Mich. - Kellogg Company (NYSE: K) today reported that its
earnings in the second quarter of 2004 exceeded expectations despite significant
increases in investment for future growth.
Reported net earnings for the quarter increased to $237.4 million from
$203.9 million in the comparable period last year. Diluted earnings per share
were $0.57, a 14% increase from last year's $0.50 per share. This result was due
to successful execution and continued sales growth across the Company.
"This was another excellent quarter," said Carlos Gutierrez, Kellogg's
chairman and chief executive officer. "Our sales growth remained very strong as
our business momentum continued, and we also continued to make significant
investments in future growth. It is particularly gratifying that we were able to
achieve this excellent performance while absorbing increased commodity and
benefit costs."
Reported net sales in the quarter increased by 6% to $2.4 billion.
Internal net sales growth, which excludes the effect of foreign-currency
translation, was 5%. This strong growth builds on a very strong first quarter
and the 3.5% growth posted during the comparable period last year.
Kellogg North America reported net sales growth of 5%. North American
retail cereal sales increased by 2%, measured in local currencies, as a result
of the introduction of innovative new products, brand-building initiatives, and
successful consumer promotions. Retail snacks sales increased by 7% due to
innovation and improved execution. The North America Frozen & Specialty Channels
businesses collectively posted internal sales growth of 4%, which built on the
excellent 5% growth posted in the comparable period last year. This increase was
largely attributable to continued gains by the Eggo brand.
Kellogg International reported net sales growth of 9% in the quarter,
or 5% in local currencies. Sales in Latin America increased by 16%, excluding
the effect of currency translation, led by exceptional growth in both cereal and
snacks. Europe's sales growth, measured in local currencies, was 3%, as the area
continued to benefit from innovation and successful brand building. Local
currency sales in the Asia Pacific region declined by 6% due to weakness in
Australia and Korea.
Operating profit was $438 million in the quarter, a 6% increase over
the comparable period last year; internal operating profit growth was 4 percent.
Higher net sales, improvements in product mix, and increased efficiency drove
the gain and more than offset increased commodity costs, significantly higher
investment in brand building, and up-front costs related to cost-reduction
projects of more than $0.03 per share. Net earnings growth also benefited from
lower interest expense and a lower effective tax rate.
Cash flow, defined as cash from operating activities less capital
expenditures, was $177 million in the quarter, which brought year-to-date cash
flow to $388 million. This approximates the 2003 year-to-date total and remains
in line with internal expectations. Once again, the quarter featured markedly
improved working capital efficiency and disciplined capital expenditure.
Kellogg Reaffirms 2004 Outlook
Kellogg reiterates its earnings outlook for 2004 of $2.07-2.11 per
share. This represents growth of 8-10%, modestly above the Company's long-term
target of high single-digit growth. Once again increasing the quality of its
earnings, Kellogg also announces that this range now includes a higher estimate
for up-front costs related to capacity rationalizations and other cost-reduction
initiatives. The Company now expects these costs to equal $0.14-0.16 per share,
or $0.04 higher than the previously projected range of $0.10-0.12 per share.
This range had been raised from an initial projection of $0.05 per share.
Mr. Gutierrez concluded, "These results only give us more confidence
that we will achieve our goals in 2004, while investing significantly for growth
in the future and absorbing increased commodity and benefit costs. We will
continue to execute our proven strategy, which should allow us to deliver
dependable, sustainable growth into the future."
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, and
meat alternatives. 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, sales, costs, strategy, 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 STATEMENT OF EARNINGS
(millions, except per share data)
===================================================================================================================================
Year-to-date Year-to-date
Quarter ended Quarter ended period ended period ended
June 26, June 28, June 26, June 28,
(Results are unaudited) 2004 2003 2004 2003
===================================================================================================================================
Net sales $2,387.3 $2,247.4 $4,777.8 $4,394.9
Cost of goods sold 1,307.1 1,232.1 2,662.6 2,463.2
Selling and administrative expense 641.8 601.2 1,256.6 1,170.2
------------------------------------------ ----------------------------------------
Operating profit 438.4 414.1 858.6 761.5
Interest expense 76.1 89.5 154.3 181.5
Other income (expense), net (5.0) (6.1) (6.3) (5.4)
------------------------------------------ ----------------------------------------
Earnings before income taxes 357.3 318.5 698.0 574.6
Income taxes 119.9 114.6 240.8 206.8
------------------------------------------ ----------------------------------------
Net earnings $237.4 $203.9 $457.2 $367.8
========================================== ========================================
Net earnings per share:
Basic $.58 $.50 $1.11 $.90
Diluted $.57 $.50 $1.10 $.90
Dividends per share $.2525 $.2525 $.5050 $.5050
========================================== ========================================
Average shares outstanding:
Basic 411.8 406.9 411.3 407.3
========================================== ========================================
Diluted 416.5 409.2 415.5 409.3
========================================== ========================================
Actual shares outstanding at period end 412.8 408.0
========================================
Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
(millions)
===================================================================================================================================
Year-to-date Year-to-date
Quarter ended Quarter ended period ended period ended
June 26, June 28, June 26, June 28,
(Results are unaudited) 2004 2003 (a) 2004 2003 (a)
===================================================================================================================================
Net sales
North America $1,567.5 $1,498.1 $3,165.8 $3,007.8
Europe 516.0 462.9 1,007.2 857.4
Latin America 185.9 170.8 354.2 315.5
Asia Pacific (b) 117.9 115.6 250.6 214.2
-------------------------------------------- ---------------------------------------------------
Consolidated $2,387.3 $2,247.4 $4,777.8 $4,394.9
============================================ ===================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Operating profit
North America $300.3 $284.3 $589.0 $543.3
Europe 96.0 82.5 178.4 140.8
Latin America 50.1 46.8 96.3 86.5
Asia Pacific (b) 17.0 20.3 42.8 37.2
Corporate (25.0) (19.8) (47.9) (46.3)
-------------------------------------------- ---------------------------------------------------
Consolidated $438.4 $414.1 $858.6 $761.5
============================================ ===================================================
===================================================================================================================================
<FN>
(a) 2003 results were restated to conform to 2004 operating segment presentation as follows:
1) U.S. and Canadian results combined into North America, 2) certain
U.S. export operations reclassified from U.S. to Latin America, and 3) certain
SGA expenditures reallocated between Corporate and North America.
(b) Includes Australia and Asia.
</FN>
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
=================================================================================================================
Year-to-date Year-to-date
period ended period ended
June 26, June 28,
(unaudited) 2004 2003
=================================================================================================================
Operating activities
Net earnings $457.2 $367.8
Adjustments to reconcile net earnings to
operating cash flows:
Depreciation and amortization 197.9 183.7
Deferred income taxes (8.9) 37.9
Other 58.8 47.6
Postretirement benefit plan contributions (126.8) (59.3)
Changes in operating assets and liabilities (88.7) (117.3)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 489.5 460.4
- -----------------------------------------------------------------------------------------------------------------
Investing activities
Additions to properties (101.1) (68.5)
Dispositions of businesses - 14.0
Other 0.8 6.5
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (100.3) (48.0)
- -----------------------------------------------------------------------------------------------------------------
Financing activities
Net issuances of notes payable 356.6 63.7
Issuances of long-term debt - 498.1
Reductions of long-term debt (502.5) (708.2)
Net issuances of common stock 202.2 58.0
Common stock repurchases (162.8) (62.0)
Cash dividends (208.2) (205.6)
Other (1.7) (2.5)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (316.4) (358.5)
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (2.7) 6.2
- -----------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 70.1 60.1
Cash and cash equivalents at beginning of period 141.2 100.6
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $211.3 $160.7
=================================================================================================================
=================================================================================================================
Supplemental Financial Data:
Cash Flow (operating cash flow less property additions)* $388.4 $391.9
=================================================================================================================
<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) June 26, December 27,
2004 2003
(unaudited) *
==========================================================================================================================
Current assets
Cash and cash equivalents $211.3 $141.2
Accounts receivable, net 899.1 754.8
Inventories:
Raw materials and supplies 198.9 185.3
Finished goods and materials in process 421.1 464.5
Other current assets 297.3 242.1
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 2,027.7 1,787.9
Property, net of accumulated depreciation
of $3,591.2 and $3,439.3 2,676.0 2,780.2
Goodwill 3,098.1 3,098.4
Other intangibles, net of accumulated amortization
of $36.7 and $35.1 2,032.8 2,034.4
Other assets 460.2 441.8
- --------------------------------------------------------------------------------------------------------------------------
Total assets $10,294.8 $10,142.7
==========================================================================================================================
Current liabilities
Current maturities of long-term debt $78.8 $578.1
Notes payable 677.4 320.8
Accounts payable 732.6 703.8
Accrued advertising and promotion 395.7 323.1
Other current liabilities 764.9 840.2
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,649.4 2,766.0
Long-term debt 4,263.5 4,265.4
Deferred income taxes 1,064.4 1,062.8
Pension benefits 169.4 165.3
Nonpension postretirement benefits 275.3 291.0
Other liabilities 138.6 149.0
Shareholders' equity
Common stock, $.25 par value 103.8 103.8
Capital in excess of par value - 24.5
Retained earnings 2,467.3 2,247.7
Treasury stock, at cost (98.3) (203.6)
Accumulated other comprehensive income (loss) (738.6) (729.2)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,734.2 1,443.2
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,294.8 $10,142.7
==========================================================================================================================
<FN>
* Condensed from audited financial statements.
</FN>