Kellogg: Announces Strong 2009 Earnings Results

Battle Creek / MG. (kc) Kellogg Company announced solid operating profit growth for the full-year and fourth quarter 2009. Reported earnings for full-year 2009 were 1,2 billion USD or 3,16 USD per diluted share, an increase of six percent from full-year 2008 of 1,1 billion USD or 2,99 USD per diluted share which included a 53rd week in the fourth quarter of 2008. On a currency neutral basis, full-year 2009 earnings per share grew 13 percent. Reported earnings in the fourth quarter of 2009 were 176 million USD or 0,46 USD per diluted share, compared with 179 million USD or 0,47 USD per diluted share in the fourth quarter of 2008.

«We continued our momentum in 2009, delivering another year of growth despite facing one of the most challenging economic environments in decades», said David Mackay, the Kellogg Company´s chief executive officer. «We maintained our focus on building and strengthening our core business, while successfully completing the first year of our three-year billion USD plus cost reduction challenge».

Full-Year Results

Full-year 2009 reported net sales were 12,6 billion USD, a two percent decline compared with the year earlier which includes currency impact and a 53rd week in the fourth quarter of 2008. However, internal net sales increased three percent year-over-year. For the same period, operating profit increased two percent to 2,0 billion USD on a reported basis and grew ten percent on an internal basis. As anticipated, 2009 up-front costs associated with the cost reduction initiatives totaled 0,26 USD per share. 2009 reported gross margin expanded 100 basis points year-over-year to 42,9 percent as continued cost management and positive price and mix more than offset increased cost pressures.

Fourth Quarter Results

During the fourth quarter 2009, reported net sales declined 1 percent to 2,9 billion USD compared with the fourth quarter in 2008 which included currency impact and a 53rd week. Over the same period, internal net sales increased two percent. Compared to the fourth quarter a year ago, reported operating profit rose two percent to 352 million USD, and increased a solid ten percent on an internal basis. Reported gross margin for the quarter improved 350 basis points as continued cost management and positive price and mix more than offset increased cost pressures.

North America

Kellogg North America posted a year-over-year 2009 full-year reported net sales increase of one percent to 8,5 billion USD, while internal net sales grew three percent. On an internal basis for the full-year 2009 compared to a year earlier, North America Retail Cereal posted positive net sales growth of four percent, and North America Retail Snacks´ net sales increased by three percent. North America Frozen and Specialty Channels full-year internal net sales declined one percent as a result of challenging industry trends in the food service business and supply disruptions of Eggo waffles. Top-line growth combined with the positive impact of the three-year billion USD plus cost savings program contributed to full-year 2009 North America operating profit of 1,6 billion USD, an eight percent increase on a reported basis, and double-digit growth of eleven percent on an internal basis.

Fourth quarter 2009 Kellogg North America´s net sales of 1,9 billion USD fell four percent on a reported basis compared to the same period in 2008 primarily due to the impact of the 53rd week in the fourth quarter of 2009, but rose two percent on an internal basis. Operating profit for the fourth quarter 2009 of 325 million USD improved 15 percent year-over-year on a reported basis, and grew a robust 25 percent on an internal basis. The increase is attributed to both sales growth and cost savings.

International

Kellogg International posted a full-year 2009 reported net sales decline of seven percent year-over-year to 4,1 billion USD. However, on an internal basis, net sales gained three percent. Compared with the year earlier, full-year 2009 internal net sales in Europe increased approximately two percent. Latin America internal net sales grew seven percent, and Asia Pacific internal net sales rose five percent. Reported 2009 operating profit for the Kellogg International business declined by twelve percent compared with 2008. On an internal basis, operating profit rose mid-single digits to five percent driven by sales growth.

Fourth quarter 2009 Kellogg International sales increased by six percent on a reported basis to 964 million USD compared with the same quarter in 2008, while internal sales increased by two percent. International operating profit for the fourth quarter 2009 decreased by 23 percent on a reported basis and declined by 23 percent on an internal basis driven by increased advertising spending, higher up-front costs, and timing of overhead.

Interest and Tax

In 2009, Kellogg´s interest expense totaled 295 million USD which included the cost associated with the bond tender offer completed in December 2009. The reported 2009 tax rate was 28,2 percent; primarily reflecting some discrete favourable tax items.

Cash flow

In 2009, Kellogg delivered record cash flow, defined as cash from operating activities less capital expenditures, generating 1,27 billion USD for the year. By comparison in 2008, the Company generated 806 million USD in cash flow including a discretionary pension contribution. Capital expenditures totaled 377 million USD during 2009.

Kellogg Raised Currency-Neutral 2010 Guidance

Kellogg raised its 2010 guidance for full-year earnings per share growth on a currency-neutral basis to be in the range of eleven to 13 percent. Assuming no foreign exchange impact, this implies earnings per share of 3,51 USD to 3,57 USD. The Company reaffirmed its two to three percent 2010 internal net sales growth guidance, in line with long-term targets. The Company also reiterated its 2010 internal operating profit growth guidance in the high single-digit range, above its long-term annual targets. Up-front costs for full-year 2010 are expected to be approximately 0,16 USD per share, a decrease from 0,26 USD per share in 2009, positively impacting operating profit and net earnings.

CEO Mackay concluded, «We enter 2010 with confidence in hitting our growth expectations, driving solid top-line growth, investing in our brands as well as implementing further cost-savings initiatives through our three-year billion USD plus cost savings challenge. With excellent financial visibility, we remain confident in our ability to deliver long-term sustainable, dependable performance».

Info: Kellogg Announces Strong 2009 Earnings Results; Delivers Record Cash Flow; Raises 2010 Currency-Neutral EPS Guidance (complete press release).
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