Battle Creek / MG. (kc) Kellogg Company announced third-quarter results for operating profit and earnings per share that were slightly greater than the company´s expectations. Third-quarter 2014 reported net sales decreased by 2.1 percent to 3.6 billion USD. Internal net sales, which exclude the effects of foreign currency translation, acquisitions, dispositions, and integration costs, decreased by 1.7 percent over the same period. Third-quarter 2014 operating profit was 365 million USD, a reported decrease of 27.5 percent; this decrease was driven primarily by costs associated with Project K, the company´s four-year efficiency and effectiveness program, the impact of mark-to-market accounting, and lower sales. Underlying internal operating profit,* which excludes the effects of foreign currency translation, acquisitions, dispositions, mark-to-market accounting, integration costs, and costs associated with Project K, decreased by 1.8 percent. The decline in underlying internal operating profit was largely the result of lower sales.
Reported earnings for the third quarter 2014 were 224 million USD, or 0.62 USD per diluted share, a decrease of 31 percent from the 0.90 USD per diluted share reported in the third quarter of last year. This quarter´s reported earnings per share included an impact from mark-to-market of 0.11 USD per share, 0.19 USD per share of costs associated with Project K, and approximately 0.02 USD per share of integration costs related to the acquisition of Pringles. Excluding these items, comparable third quarter 2014 earnings were 0.94 USD per share, slightly greater than anticipated by the company.
«We are pleased to have announced results for quarterly operating profit and earnings per share that were ahead of our expectations. Our international business did well in the quarter, although we continued to face the challenges in developed regions and categories that we have seen all year», said John Bryant, Kellogg Company´s chairman and chief executive officer. «We have been working hard on our plans for 2015 and we have both good brand-building activities and new-product introductions planned for the first quarter, and the balance of the year. We also continue to execute the largest restructuring program in our history, which will enable us to invest back in our business and drive sustainable growth».
Net sales posted by Kellogg North America were 2.3 billion USD in the third quarter, a reported decrease of 4.2 percent; internal net sales decreased by 3.9 percent. The U.S. Morning Foods segment posted an internal net sales decline of 4.7 percent. Internal net sales in the U.S. Snacks segment decreased by 4.2 percent. The U.S. Specialty Channels segment posted a 4.1 percent internal net sales decline in the quarter and the North America Other segment, which is comprised of the U.S. Frozen Foods and Canadian businesses, posted a 1.1 percent decrease in internal net sales. Reported operating profit in North America decreased by 19.8 percent; underlying internal operating profit declined by 9.1 percent, as the result of lower sales.
Reported net sales decreased by 0.6 percent in Europe in the quarter; internal net sales also decreased by 0.6 percent. In Latin America, reported net sales increased by 6.2 percent and internal net sales increased by 7.3 percent. Reported net sales in Asia Pacific increased by 4.8 percent and internal net sales increased by 5.0 percent.
Interest and Tax
Kellogg´s interest expense was 54 million USD in the third quarter. The underlying tax rate in the third quarter of 2014 was 28.5 percent.
Cash flow, a non-GAAP measure defined as cash from operating activities less capital expenditures, was 822 million USD for the first three quarters of the year. The company continues to anticipate that cash flow for the year will be at the low end of the range between one billion USD and 1.1 billion USD.
Year-to-date, Kellogg has repurchased 690 million USD of shares, far exceeding option proceeds of 151 million USD. The company remains on-track with its share repurchase program for the full year.
Kellogg Retains Currency-Neutral, Full-Year 2014 Guidance
The company reiterated its currency-neutral guidance for the full year of 2014. Internal net sales are expected to decline by between one and two percent. Underlying internal operating profit growth is expected to decline by between one and three percent. Currency-neutral comparable earnings per share are expected to be in a range between a decline of one percent and an increase of one percent. Integration costs associated with the acquisition of the Pringles business are still expected to be in a range between 0.07 USD and 0.09 USD per share. Costs associated with Project K are still expected to be in a range between 0.60 USD and 0.65 USD per share. As a result, earnings excluding the impact of mark-to-market accounting, integration costs, Project K and other items impacting comparability are anticipated to be between 3.81 USD and 3.89 USD per share. This year´s 53rd week is still expected to add approximately 0.07 USD per share to earnings and currency translation is now expected to have no impact on earnings. As a result, the company expects a full-year earnings range including the impact of the 53rd week and currency translation of between 3.88 USD and 3.96 USD per share.