Kellogg Company Reports Solid Results, Reaffirms Full-Year Guidance

BATTLE CREEK, Mich., May 2, 2013 (GLOBE NEWSWIRE) -- Kellogg Company (NYSE:K) today announced solid results that were in-line with the company's expectations. First quarter 2013 reported net sales increased by 12.2 percent to $3.9 billion. Internal net sales*, which exclude the effects of foreign currency translation, acquisitions, dispositions, and integration costs, rose by 2.2 percent over the same period. First quarter 2013 operating profit was $503 million, a reported decrease of 4.5 percent; underlying internal operating profit*, which excludes the effects of foreign currency translation, acquisitions, dispositions, mark-to-market accounting, and integration costs, decreased by 5.8 percent. As expected, the decline in underlying internal operating profit* was largely due to the recognition of considerable cost-of-goods-sold inflation in the quarter. Results in the first quarter included a majority of the inflation, net of cost savings, that the company expects to recognize for the full year.

Reported earnings for the first quarter 2013 were $311 million, or $0.85 per diluted share, a decline of 13 percent from the $0.98 per diluted share reported in the first quarter of last year. Comparable first quarter 2013 earnings*, which exclude the impact of mark-to-market accounting and integration costs associated with the acquisition of Pringles, were $0.99 per share, in-line with the company's expectations. This result included a negative impact of $0.03 per share from the Venezuelan devaluation.

"Results in the first quarter were broadly as we expected, and we're pleased to have a solid start to the year," said John Bryant, Kellogg Company's president and chief executive officer. "We saw good comparable revenue growth in many regions around the world and the Pringles business continued to post strong results. As a result, we're also pleased to report that we're on-track to meet our guidance for the full-year."

* Internal sales growth, underlying internal operating profit growth, underlying internal operating profit, and comparable earnings are all non-GAAP financial measures. See the tables herein for important information regarding these measures and a full reconciliation to the most comparable GAAP measure.

North America

Kellogg North America net sales were $2.6 billion in the first quarter, a reported increase of 8.1 percent; internal net sales increased by 1.7 percent. The U.S. Morning Foods segment posted internal net sales growth of 1.6 percent. Internal net sales in the U.S. Snacks segment declined by 1.7 percent. The U.S. Specialty Channels segment posted 3.4 percent internal net sales growth in the quarter and the North America Other segment, which is comprised of the U.S. Frozen Foods and Canadian businesses, achieved 7.4 percent internal sales growth. Reported operating profit in North America increased by 1.2 percent; internal operating profit declined by 3.5 percent, largely as the result of the cost-of-goods-sold inflation.

International

Reported net sales increased by 28.7 percent in Europe in the quarter; internal net sales increased by 2.6 percent, primarily as the result of good growth in the United Kingdom. In Latin America, reported net sales increased by 13.7 percent and internal net sales increased by 7.4 percent. Reported net sales in Asia Pacific increased by 14.7 percent and internal net sales increased by 0.3 percent, although consumption increased at a faster rate.

Interest and Tax

Kellogg's interest expense was $60 million in the first quarter. The company recognized a one-time, pre-tax benefit of $26 million in the first quarter of 2012 as the result of hedging activities associated with the acquisition of the Pringles business; this accounted for a majority of the year-over-year increase in interest expense. The reported effective tax rate in the first quarter of 2013 was 28.4 percent.

Cash flow

Cash flow, a non-GAAP measure, defined as cash from operating activities less capital expenditures, was $236 million for the quarter. This was lower than the $277 million posted in the first quarter of 2012; the decline was the result of differences in the timing of capital expenditures. Cash flow for the year is still anticipated to be in a range between $1.1 and $1.2 billion.

Kellogg repurchased $44 million of shares during the first quarter, less than option proceeds of $259 million.

Full-Year 2013 Guidance

The company reaffirmed its guidance for full-year reported net sales growth of approximately seven percent. Earnings per share growth, excluding the impact of mark-to-market accounting, is still expected to be between five and seven percent. Integration costs associated with the acquisition of the Pringles business are still expected to be in a range between $0.12 and $0.14 per share. As a result, earnings excluding the impact of mark-to-market accounting and integration costs are still anticipated to be between $3.82 and $3.91 per share.

Share Repurchase Authorization

The company also announced that the Board of Directors approved a share repurchase authorization of $1 billion, which expires in April of 2014. This authorization supersedes the existing authorization and is intended to allow the company to repurchase shares to offset the impact of proceeds from the exercise of options through the end of 2013, and to begin the company's 2014 purchase plan.

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on May 2, 2013 at 9:30 a.m. Eastern Time. The conference call and accompanying presentation slides will be broadcast live over the Internet at http://investor.kelloggs.com. Analysts and institutional investors may participate in the Q&A session by dialing (877) 270-2148 in the U.S., and (412) 902-6510 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is available at http://investor.kelloggs.com.

About Kellogg Company

At Kellogg Company (NYSE:K), we are driven to enrich and delight the world through foods and brands that matter. With 2012 sales of $14.2 billion, Kellogg is the world's leading cereal company; second largest producer of cookies and crackers; a leading producer of savory snacks; and a leading North American frozen foods company. Every day, our well-loved brands nourish families so they can flourish and thrive. These brands include Kellogg's®, Keebler®, Special K®, Pringles®, Frosted Flakes®, Pop-Tarts®, Corn Flakes®, Rice Krispies®, Kashi®, Cheez-It®, Eggo®, Coco Pops®, Mini-Wheats®, and many more. To learn more about our responsible business leadership, foods that delight and how we strive to make a difference in our communities around the world, visit www.kelloggcompany.com.

Use of Non-GAAP Financial Measures

Certain financial measures have been provided on a non-GAAP (Generally Accepted Accounting Principles) basis. Management believes the use of such non-GAAP measures provides increased transparency and assists investors in understanding the underlying operating performance of the company and its segments and in the analysis of ongoing operating trends. All non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures in the attachments provided with the release.

Forward-Looking Statements Disclosure

This news release contains, or incorporates by reference, "forward-looking statements" with projections concerning, among other things, the integration of the Pringles® business, the Company's strategy, and the Company's sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words "expects," "believes," "should," "will," "anticipates," "projects," "estimates," "implies," "can," or words or phrases of similar meaning.

The Company's actual results or activities may differ materially from these predictions. The Company's future results could also be affected by a variety of factors, including the ability to realize the anticipated benefits and synergies from the Pringles acquisition in the amounts and at the times expected, the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; labor costs; disruptions or inefficiencies in supply chain; the availability of and interest rates on short-term and long-term financing; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; changes in consumer behavior and preferences; the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability; legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations; the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and other items.

Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.

CONTACT: Analyst Contact:
         Simon Burton, CFA
         (269) 961-6636
         
         Media Contact:
         Kris Charles
         (269) 961-3799