Kellogg Co. posts solid first quarter

May 24, 2010
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Kellogg Co. (NYSE:K) reported solid first quarter 2010 growth in internal net sales, as well as robust internal operating profit and currency-neutral earnings per share growth. The strong operating profit performance was driven by continued focus on cost savings, moderating inflation costs and timing of advertising expenditures.

According to a news release, first quarter net earnings were $418 million, a 30 percent increase over the first quarter a year ago. First quarter reported earnings per diluted share were $1.09, a 30 percent increase on a reported basis and a 27 percent increase on a currency-neutral basis.

First quarter reported net sales increased 5 percent to $3.3 billion. Internal net sales growth, which excludes the effects of foreign currency translation, rose 2 percent. Total operating profit for the first quarter 2010 grew 20 percent on a reported basis to $637 million, and internal operating profit increased 17 percent. Reported gross margin expanded 190 basis points to 43 percent in the quarter.

"We are pleased with our first quarter 2010 performance and are off to a positive start to the year," said David Mackay, Kellogg Co.’s chief executive officer. "By remaining focused on our business model and strategy, we delivered solid results during the first quarter despite facing anticipated pressure to our top-line."

Kellogg North America posted first quarter reported net sales growth of 3 percent; internal net sales growth was 2 percent. North America Retail Cereal delivered internal net sales growth of approximately half of a percent for the quarter reflecting increased competition in the cereal category and the lapping of a strong first quarter in 2009. Retail Snacks posted internal net sales growth of 5 percent, reflecting positive growth in all categories. The North America Frozen and Specialty Channels businesses posted an internal net sales decline of 3 percent, primarily a result of the Eggo supply disruption.

North America operating profit rose 23 percent on a reported basis, and 22 percent on an internal basis. The increase is attributed to solid sales growth combined with strong gross margin expansion and shifts in the timing of reinvestment in our business.

Kellogg International posted a first quarter 2010 reported net sales increase of 9 percent. On an internal basis, net sales growth for Kellogg International was 2 percent, excluding the effects of currency translation. First quarter internal net sales growth in Europe was 2 percent. Latin America internal net sales increased 1 percent as the strong performance in Mexico was muted by the impact of excessive rains which caused extensive water damage to our manufacturing facility resulting in a supply disruption in Brazil during the first quarter. Asia Pacific internal net sales rose 1 percent, compared to a double-digit increase in the same period a year earlier.

First quarter 2010 Kellogg International operating profit increased 9 percent on a reported basis. Operating profit grew 3 percent on an internal basis due to solid sales growth and improved gross margin, partially offset by increased advertising expenditures.

Mackay said Kellogg continues to be well positioned to drive sustainable and dependable performance. The company affirmed its previous 2010 guidance for full-year earnings per share growth on a currency-neutral basis to be in the range of 11 to 13 percent. The company reaffirmed its 2 to 3 percent 2010 internal net sales growth guidance, in line with long-term targets. The company also reiterated its 2010 internal operating profit growth guidance of 8 to 10 percent, above its long-term annual targets. Up-front costs for full-year 2010 are still expected to be approximately $0.16 per share.

"For 2010, we will focus on improving top-line growth, continuing to implement our cost savings initiatives and reinvesting back in our business through increased brand building and additional productivity initiatives,” Mackay said. “Our strong start to 2010 increases our visibility for another year of sustainable and dependable performance."

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