Kellogg: results 2012 in line with guidance

Battle Creek / MG. (kc) Kellogg Company announced that fourth quarter reported net sales increased to 3,6 billion USD, an 18,2 percent increase from the fourth quarter of 2011. Internal net sales, which exclude the effects of foreign currency translation, acquisitions, divestitures and integration costs, increased by 5,3 percent. Full-year 2012 reported net sales increased by 7,6 percent to 14,2 billion USD, an increase of 999 million USD from the full-year 2011 results. Full-year internal net sales increased by 2,5 percent.

Reported operating profit (which includes the impact of the accounting change) was 3,0 million USD in the fourth-quarter of 2012 and 1,6 billion USD for the full year. Comparable internal operating profit, which excludes the impact of changes to the accounting for pensions and post-retirement plans, the effects of foreign currency translation, acquisitions, divestitures and integration costs declined by 7,6 percent. This decline was the result of continued inflation in cost of goods sold, a double-digit increase in investment in brand building and the timing of up-front costs. Full-year comparable internal operating profit declined by 5,9 percent. This decline was as anticipated and resulted from continued high-levels of inflation in cost of goods sold, a limited recall in the third quarter of 2012 and increased investment in brand building.

Reported earnings (which include the impact of the accounting change) were (0,09 USD) per share in the fourth quarter and 2,67 USD per share for the full year. Earnings per share were impacted by changes in the accounting for pension and post-retirement benefit plans. Full-year comparable earnings before accounting change (non-GAAP) were 3,28 USD per share, a decrease of three percent from full-year 2011 earnings of 3,38 USD per share. Excluding net integration costs related to the acquisition of Pringles, full-year underlying earnings (non-GAAP) were 3,37 USD per share, a decrease of 0,3 percent from the full-year results posted last year. Foreign currency translation lowered full-year earnings by 0,06 USD per share and had no impact on the fourth quarter´s earnings per share.

«Kellogg Company delivered strong performance in the fourth quarter, continuing the sequential improvement we´ve seen all year», said John Bryant, Kellogg Company´s president and chief executive officer. «We met our goals for full-year internal sales, operating profit and earnings per share growth and we made significant investment in future growth. In addition, the Pringles acquisition is an excellent strategic fit and provides significant opportunity in our snacks business across the globe».

North America

Reported net sales growth for Kellogg North America was 7,5 percent in 2012 and 12,3 percent in the fourth quarter. Internal net sales growth was 3,6 percent for the full year 2012 and 5,5 percent for the fourth quarter. The U.S. Morning Foods and Kashi segment posted internal net sales growth of 2,7 percent in 2012 and 6,3 percent in the fourth quarter. U.S. Snacks posted internal net sales growth of 1,9 percent in 2012 and 0,7 percent growth in the fourth quarter, building on 8,3 percent growth in the fourth quarter of 2011. The U.S. Specialty Channels business posted strong internal net sales growth of 7,4 percent for the full year of 2012 and ten percent in the fourth quarter. The North America Other business posted internal net sales growth of 7,0 percent for the full-year 2012 and 11,2 percent growth in the fourth quarter.

North American reported operating profit increased by 1,3 percent and internal operating profit decreased by 1,6 percent in the fourth quarter. North American reported operating profit increased by 2,7 percent for the full-year; full-year internal operating profit declined by 0,3 percent, also due to continued high-levels of commodity inflation, a mid single-digit increase in investment in brand building and the limited recall in the third quarter.

International

Kellogg International reported net sales growth of 7,7 percent in 2012 and 30,9 percent in the fourth quarter. Full-year internal net sales growth was 0,2 percent and fourth quarter internal net sales growth was 4,8 percent. Internal net sales growth in the Latin American business was 6,7 percent in 2012; internal growth in the fourth quarter was 9,4 percent. Internal net sales in our European business decreased by 3,8 percent in 2012 and increased by 2,7 percent in the fourth quarter; performance in the European business improved sequentially as the year progressed. The Asia Pacific business posted internal net sales growth of 2,7 percent for the full year and 4,6 percent in the fourth quarter.

Kellogg International´s full-year reported operating profit decreased by 14,2 percent and internal operating profit decreased by 16,4 percent. Kellogg International´s fourth quarter reported operating profit declined by 4,7 percent and internal profit declined by 21,9 percent. Latin America´s internal operating profit increased by 19,7 percent in the fourth quarter due to strong sales growth and a relatively easier comparison to the fourth quarter of last year; included in the growth was the impact of higher commodity costs. Europe´s fourth-quarter internal operating profit decreased by 7,7 percent due to significant cost inflation and a continued difficult operating environment. Asia Pacific´s internal operating profit decreased by 72,3 percent in the fourth quarter as the result of up-front costs associated with the closure of a plant in Australia, a double-digit increase in the rate of investment in brand building and increased cost inflation.

Interest and Tax

Kellogg´s interest expense totalled 66 million USD in the fourth quarter and was 261 million USD for the year. Including the impact of the change in accounting for pension and post-retirement benefit plans, the reported effective tax rate was 53 percent for the fourth quarter and 27,4 percent for the full year. Excluding the mark-to-market adjustment, the effective tax rate was 28,9 percent for the year, consistent with guidance.

Cash flow

Cash flow, a non-GAAP measure defined as cash from operating activities less capital expenditures, was slightly more than 1,2 billion USD for the full year. Kellogg repurchased approximately 63 million USD of shares during the year, all in the first quarter.

Kellogg Updates 2013 Earnings Guidance

The Company reaffirmed its guidance for reported net sales growth, which is expected to increase by approximately seven percent in 2013. Kellogg expects full-year reported operating profit to increase at a rate slightly faster than the rate of earnings-per-share growth. Full-year reported earnings per share are anticipated to grow between five and seven percent. Guidance for both operating profit and earnings per share excludes the impact of mark-to-market adjustments. Cash flow is expected to be in a range between 1,1 billion USD and 1,2 billion USD.

Bryant continued, «We have done a lot of work in recent years to set the right foundation: we have invested in the business, we have adjusted our strategy to focus more on growth and we have acquired the Pringles business. These have been significant changes for us; we´re confident that they are the right ones and I remain optimistic regarding our potential in the future».

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