EXHIBIT 99.1
[KELLOGG'S LOGO]
Kellogg Company News
FOR RELEASE: November 3, 2003
MEDIA/ANALYST John P. Renwick, CFA (269) 961-6365
CONTACTS: Simon D. Burton, CFA (269) 961-6636
STRONG SALES BOOST KELLOGG'S EARNINGS AND OUTLOOK
BATTLE CREEK, MICH. -- Kellogg Company (NYSE: K) today reported that
strong net sales growth drove a substantial earnings gain in the third quarter
of 2003, even after significant reinvestment for future growth. This business
momentum prompted the Company to raise its full-year earnings guidance.
Reported net earnings were $231.3 million, or $0.56 per diluted share,
compared to the year-ago period's $203.5 million, or $0.49 per share. This
represents earnings per share growth of 14% year-over-year. Through the first
nine months, reported net earnings increased by 13% to $599.1 million, or $1.46
per share, compared to year-earlier earnings of $529.9 million, or $1.29 per
share. Excluding $0.02 of favorable legal settlements in 2002's first quarter,
EPS growth during the first nine months of 2003 was 15%.
"Our momentum continued into the third quarter of 2003, as we posted
record sales, operating income, earnings per share and cash flow," said Carlos
Gutierrez, Kellogg's chairman and chief executive officer. "Importantly, we also
were able to make significant investments in our brands and absorb costs related
to productivity initiatives that will drive the business in 2004 and beyond."
Net sales in the third quarter increased by 6.8%, to $2.28 billion.
Foreign currency translation contributed 2.7 percentage points to the sales
growth, and a small divestiture, completed at the beginning of 2003, reduced
growth by about 0.4 percentage point. Excluding the effect of currency
translation and this divestiture, Kellogg's internal sales growth was 4.5%. This
internal growth rate was higher than that recorded during the first half of the
year, and it compared against a notably strong year-earlier rate of 5.6%.
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This sales growth was broad-based, with all major geographic areas
posting solid gains. Kellogg USA's internal net sales growth exceeded 3%, as a
decline in cookies sales was more than offset by gains in cereal, wholesome
snacks, and other products. U.S. Retail Cereal sales increased 11%, as new
products and effective advertising and consumer promotions enabled us to grow on
top of a difficult comparison of 6% growth in the year-ago period. Despite
growth in wholesome snacks and crackers, our U.S. Snacks business posted an
internal sales decline of 4% as a result of continued weak cookie sales, the
elimination of numerous products (stock-keeping units), and the discontinuation
of a major custom-manufacturing account. The U.S. All Other businesses
collectively posted 3% internal net sales growth in the quarter, led by
Pop-Tarts toaster pastries.
Kellogg International again posted excellent results with an increase
in net sales of approximately 15%, or almost 7% in local currencies. This gain
resulted from continued execution of the Company's Volume to Value strategy,
which featured increased brand building and innovation, and drove an improvement
in mix. The Company's European business posted currency-adjusted sales growth of
almost 4% as the region's largest market, the U.K., again achieved strong sales
growth and share gains as a result of marketing initiatives and new product
introductions. Elsewhere in Europe, the Company posted notable internal growth
in France, Spain, and Italy. In Latin America, the Company reported sales growth
of approximately 10%, or almost 17% on a currency-neutral basis. This was led by
significant internal sales growth in the Mexican business, where both the cereal
and snacks segments were very strong. The other segment of Kellogg
International, comprised of Australia, Canada, and Asia, collectively posted
local-currency sales growth of approximately 5%.
"Kellogg International and U.S. Cereal performed impressively, as they
both featured strong top-line growth on top of year-ago gains, and were driven
the right way -- through brand building and innovation," commented Mr.
Gutierrez. "While the cookies segment of our U.S. Snacks business was soft, we
were able to generate double-digit growth in wholesome snacks."
Driven by the increase in sales, operating profit in the quarter grew
by approximately 4%, to $431 million. Kellogg's gross profit margin decreased by
a slight 20 basis points, due to asset
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write-offs and other costs related to ongoing capacity rationalization and
productivity initiatives. Obscured by these costs, was the impact of operating
leverage, favorable mix, and productivity savings, which more than offset the
effect of higher commodity, energy, and benefits costs. The Company also
continued to invest in its brands, with advertising and consumer promotion
rising at a double-digit rate over the year-earlier quarter.
"Key to sustaining our top- and bottom-line growth is improving our
underlying profitability and reinvesting in our brands," said Mr. Gutierrez.
"During the third quarter, our profitability was strong enough that we could
invest significantly in brand building, absorb up-front costs related to
productivity initiatives, and still post solid earnings growth."
Cash flow, defined as cash from operating activities less capital
expenditure, was $470 million in the quarter, which represented a 3% increase
over the strong comparable growth of 26% posted in the third quarter of last
year. Working capital efficiency improved as a percentage of rolling
twelve-month sales for the ninth consecutive quarter. The Company paid down
approximately $200 million of debt during the quarter.
Mr. Gutierrez said, "It is cash flow that improves our financial
flexibility and creates value for share owners. This quarter we posted records
for cash flow and working capital as a percentage of sales. Our entire
organization is focused on `managing for cash', and our better-than-expected
cash flow this year is a result of our employees' great work."
KELLOGG RAISES 2003 GUIDANCE AND OFFERS 2004 PREVIEW
Based on its strong year-to-date results and expectations for continued
momentum, Kellogg moved its full-year 2003 earnings per share guidance to
$1.89-1.91, from its previous range of $1.88-1.90. The Company stated that its
fourth quarter should feature mid-single-digit net sales growth and substantial
reinvestment in the business, including a double-digit increase in brand
building and additional up-front expenses related to cost-savings projects.
Kellogg also gave preliminary indications for 2004, forecasting
earnings per share of $2.05-2.09, in line with its ongoing target of high
single-digit growth. The Company projects low single-
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digit net sales growth, before currency translation or the benefit of an extra
shipping week in the fourth quarter. Operating leverage, mix, productivity
savings, and cost control should again allow the Company to overcome
significantly higher benefits expense and commodity costs, while continuing to
fund strong investment in brand building and absorb costs related to
productivity initiatives.
Mr. Gutierrez concluded, "The third quarter provided further evidence
that there is good momentum in our business, and that we are reinvesting for
sustained growth in 2004. We are running our Company for many years of steady,
dependable growth."
ABOUT KELLOGG COMPANY
With 2002 sales of $8.3 billion, Kellogg Company is the world's leading producer
of cereal and a leading manufacturer of convenience foods such as cereal bars,
frozen waffles, toaster pastries, cookies, and crackers. The Company also
produces natural and vegetarian foods. Founded in 1906 and dedicated to
providing nutritious, good-tasting foods, Kellogg has manufacturing facilities
in 18 countries and its products are sold in more than 180 countries. Kellogg
brands include Kellogg's, Keebler, Pop-Tarts, Eggo, Nutri-Grain, Cheez-It,
Morningstar Farms, and Kashi. For more information, or for any non-GAAP
financial information provided in response to questions asked during today's
conference call, please visit Kellogg's web site at www.kelloggcompany.com.
FORWARD-LOOKING STATEMENTS DISCLOSURE
This news release contains forward-looking statements related to
business performance, cash flow, costs, sales, investments, brand building,
productivity, momentum, profitability, earnings, financial flexibility, and
growth. Actual performance may differ materially from these statements due to
factors related to the Keebler acquisition, unanticipated liabilities, and the
substantial amount of indebtedness incurred to finance the 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; pricing and promotional spending; the effectiveness of
marketing spending and programs; the success of productivity improvements and
business transitions; the success of innovation and new product
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introductions; the recoverability of the carrying amount 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; changes in consumer behavior and preferences;
U.S. and foreign economic factors such as interest rates, statutory tax rates,
and foreign currency translations or unavailability; legal and regulatory
factors; business disruption or other losses from terrorist acts or political
unrest; and other factors.
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KELLOGG COMPANY AND SUBSIDIARIES
CONSOLIDATED EARNINGS
(millions, except per share data)
=======================================================================================================
YEAR-TO-DATE YEAR-TO-DATE
QUARTER ENDED QUARTER ENDED PERIOD ENDED PERIOD ENDED
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
(Results are unaudited) 2003 2002 2003 2002
=======================================================================================================
NET SALES $ 2,281.6 $ 2,136.5 $ 6,676.5 $ 6,323.4
COST OF GOODS SOLD 1,247.6 1,163.4 3,710.8 3,502.1
SELLING AND ADMINISTRATIVE EXPENSE 603.2 558.3 1,773.4 1,707.0
----------- ----------- ----------- -----------
OPERATING PROFIT 430.8 414.8 1,192.3 1,114.3
INTEREST EXPENSE 87.0 102.2 268.5 297.2
OTHER INCOME (EXPENSE), NET 7.6 8.1 2.2 24.5
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 351.4 320.7 926.0 841.6
INCOME TAXES 120.1 117.2 326.9 311.7
----------- ----------- ----------- -----------
NET EARNINGS $ 231.3 $ 203.5 $ 599.1 $ 529.9
=========== =========== =========== ===========
NET EARNINGS PER SHARE:
BASIC $ .57 $ .50 $ 1.47 $ 1.30
DILUTED $ .56 $ .49 $ 1.46 $ 1.29
DIVIDENDS PER SHARE $ .2525 $ .2525 $ .7575 $ .7575
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING:
BASIC 408.3 409.4 407.6 408.6
=========== =========== =========== ===========
DILUTED 410.9 412.0 410.0 411.4
=========== =========== =========== ===========
ACTUAL SHARES OUTSTANDING AT PERIOD END 408.2 407.8
=========== ===========
=====================================================================================================
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.
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KELLOGG COMPANY AND SUBSIDIARIES
SELECTED OPERATING SEGMENT DATA
(millions)
=============================================================================================================
YEAR-TO-DATE YEAR-TO-DATE
QUARTER ENDED QUARTER ENDED PERIOD ENDED PERIOD ENDED
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
(Results are unaudited) 2003 2002 2003 2002
=============================================================================================================
NET SALES
United States $1,442.5 $1,405.4 $4,294.6 $4,231.6
Europe 451.1 393.6 1,308.5 1,102.1
Latin America 176.1 160.5 482.1 480.6
All other operating segments* 211.9 177.0 591.3 509.1
Corporate - - - -
-------- -------- -------- --------
Consolidated $2,281.6 $2,136.5 $6,676.5 $6,323.4
======== ======== ======== ========
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SEGMENT OPERATING PROFIT
United States $ 290.7 $ 282.6 $ 798.9 $ 787.6
Europe 86.8 76.8 227.6 189.5
Latin America 44.8 44.6 130.9 128.8
All other operating segments* 38.6 27.7 111.3 68.7
Corporate (30.1) (16.9) (76.4) (60.3)
-------- -------- -------- --------
Consolidated $ 430.8 $ 414.8 $1,192.3 $1,114.3
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* INCLUDES CANADA, AUSTRALIA, AND ASIA.
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KELLOGG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
==============================================================================================
YEAR-TO-DATE YEAR-TO-DATE
PERIOD ENDED PERIOD ENDED
SEPT. 27, SEPT. 28,
(unaudited) 2003 2002
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OPERATING ACTIVITIES
Net earnings $ 599.1 $ 529.9
Adjustments to reconcile net earnings to
operating cash flows:
Depreciation and amortization 272.0 260.4
Deferred income taxes 57.5 43.8
Other 59.9 45.0
Postretirement benefit plan contributions (59.9) (58.0)
Changes in operating assets and liabilities 54.4 249.4
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NET CASH PROVIDED BY OPERATING ACTIVITIES 983.0 1,070.5
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INVESTING ACTIVITIES
Additions to properties (121.2) (136.0)
Acquisitions of businesses - (2.2)
Dispositions of businesses 14.0 61.0
Other 8.3 (1.9)
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NET CASH USED IN INVESTING ACTIVITIES (98.9) (79.1)
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FINANCING ACTIVITIES
Net issuances (reductions) of notes payable (135.0) (94.5)
Issuances of long-term debt 498.1 -
Reductions of long-term debt (710.9) (356.6)
Net issuances of common stock 80.4 91.4
Common stock repurchases (76.3) (82.8)
Cash dividends (308.8) (310.0)
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NET CASH USED IN FINANCING ACTIVITIES (652.5) (752.5)
-------- --------
Effect of exchange rate changes on cash 9.7 (9.5)
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Increase in cash and cash equivalents 241.3 229.4
Cash and cash equivalents at beginning of period 100.6 231.8
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 341.9 $ 461.2
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SUPPLEMENTAL FINANCIAL DATA:
Cash Flow (operating cash flow less property additions)* $ 861.8 $ 934.5
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* 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.
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KELLOGG COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
===============================================================================
(millions, except per share data) SEPT. 27, December 28,
2003 2002
(unaudited) *
===============================================================================
CURRENT ASSETS
Cash and cash equivalents $ 341.9 $ 100.6
Accounts receivable, net 842.4 741.0
Inventories:
Raw materials and supplies 183.6 172.2
Finished goods and materials in process 401.4 431.0
Other current assets 283.2 318.6
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TOTAL CURRENT ASSETS 2,052.5 1,763.4
PROPERTY, net of accumulated depreciation
of $3,337.0 and $3,012.4 2,716.4 2,840.2
GOODWILL 3,102.6 3,106.6
OTHER INTANGIBLES, net of accumulated amortization
of $21.7 and $20.6 2,025.6 2,026.0
OTHER ASSETS 491.5 483.1
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TOTAL ASSETS $10,388.6 $10,219.3
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CURRENT LIABILITIES
Current maturities of long-term debt $ 577.8 $ 776.4
Notes payable 285.9 420.9
Accounts payable 623.6 619.0
Accrued advertising and promotion 371.2 309.0
Other current liabilities 956.1 889.6
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TOTAL CURRENT LIABILITIES 2,814.6 3,014.9
LONG-TERM DEBT 4,518.4 4,519.4
DEFERRED INCOME TAXES 1,000.4 986.4
PENSION BENEFITS 351.0 334.5
NONPENSION POSTRETIREMENT BENEFITS 337.8 329.6
OTHER LIABILITIES 148.7 139.4
SHAREHOLDERS' EQUITY
Common stock, $.25 par value 103.8 103.8
Capital in excess of par value 25.3 49.9
Retained earnings 2,163.3 1,873.0
Treasury stock, at cost (254.1) (278.2)
Accumulated other comprehensive income (loss) (820.6) (853.4)
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TOTAL SHAREHOLDERS' EQUITY 1,217.7 895.1
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,388.6 $10,219.3
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* Condensed from audited financial statements.
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