Kellogg Company Reports Q3/2015 Results

Battle Creek / MG. (kc) Kellogg Company announced third-quarter 2015 results that were in-line with expectations. The company expects to achieve its full-year guidance for currency-neutral comparable net sales, operating profit, and earnings per share. The company raised its guidance for 2015 operating cash flow after capital expenditure to 1.1 billion USD.

• Results for the third quarter were as expected.
• Improving trends in the U.S. Cereal business.
• The company is increasing guidance for 2015’s operating cash flow after capital expenditure to 1.1 billion USD.
• The company continues to expect that it will meet previous currency-neutral guidance for net sales, operating profit, and earnings per share for the full-year 2015.
• Currency-neutral comparable net sales and operating profit are expected to be in-line with long-term growth targets in 2016.

«The company’s results for the third quarter continued the momentum that we saw earlier in the year. Our developing and emerging-market businesses performed well, and the trends in our developed businesses continued to show improvement over last year», said John Bryant, Kellogg Company’s chairman and chief executive officer. «Our major productivity programs continue to progress well and we remain on-track to meet our objectives for 2015 and 2016».

Financial Summary

[ USD in millions except per share data ]		Q4/2015				Q4/2014				Change			YTD 2015				YTD 2014				Change
Reported Net Sales			3’329	USD			3’639	USD		(8.5)	%			10’383	USD			11’066	USD		(6.2)	%
Comparable Net Sales *			3’316	USD			3’635	USD		(8.8)	%			10’352	USD			11’057	USD		(6.4)	%
Currency-Neutral Comparable Net Sales *			3’671	USD			3’635	USD		1.0	%			11’085	USD			11’057	USD		0.2	%
Reported Operating Profit			334	USD			365	USD		(8.7)	%			1’130	USD			1’446	USD		(21.9)	%
Comparable Operating Profit *			465	USD			531	USD		(12.3)	%			1’499	USD			1’657	USD		(9.5)	%
Currency-Neutral Comparable Operating Profit *			518	USD			531	USD		(2.3)	%			1’595	USD			1’657	USD		(3.7)	%
Reported Net Income (Loss)			205	USD			224	USD		(8.4)	%			655	USD			925	USD		(29.2)	%
Comparable Net Income (Loss) *			301	USD			340	USD		(11.3)	%			978	USD			1’075	USD		(9.0)	%
Currency-Neutral Comparable Net Income (Loss) *			344	USD			340	USD		0.9	%			1’058	USD			1’075	USD		(1.7)	%
Reported Diluted Earnings Per Share			0.58	USD			0.62	USD		(6.5)	%			1.84	USD			2.56	USD		(28.1)	%
Comparable Diluted Earnings Per Share *			0.85	USD			0.94	USD		(9.6)	%			2.75	USD			2.98	USD		(7.7)	%
Currency-Neutral Comparable Diluted EPS *			0.96	USD			0.94	USD		2.1	%			2.97	USD			2.98	USD		(0.3)	%
* Non-GAAP financial measures  | Q4/2015 ended 2015-10-03  |  Q4/2014 ended 2014-09-27  |  YTD = Year-to-Date [ 2015-10-03 – 2014-09-27 ]

 
Third-quarter 2015 reported net sales decreased by 8.5 percent to 3.3 billion USD, due to the effect of currency translation. Currency-neutral comparable net sales increased by 1.0 percent in the quarter as the result of growth in Latin America, Asia, Canada, and the U.S. Specialty Channels business. Quarterly reported operating profit was 334 million USD, a decline of 8.7 percent. Reported results were affected by up-front costs associated with Project K and currency translation. Currency-neutral comparable operating profit declined by 2.3 percent, primarily due to the resetting of incentive compensation closer to targeted levels; the resetting of incentive compensation lowered operating profit growth by approximately eight percentage points.

Reported earnings for the third quarter of 2015 were 205 million USD, or 0.58 USD per share, a decrease of six percent from the 0.62 USD per share reported in the third quarter of last year. This quarter’s reported earnings per share included negative impacts from the remeasurement of the Venezuelan business of 0.04 USD per share, mark-to-market accounting of 0.04 USD per share, costs associated with the Project K efficiency and effectiveness program of 0.18 USD per share, and 0.02 USD per share of integration and transaction costs. In addition, reported results included a benefit of 0.01 USD per share from acquisitions. Excluding all of these items, comparable third-quarter 2015 earnings were 0.85 USD per share. This result included a negative impact of 0.11 USD per share from currency translation; currency-neutral comparable earnings per share were 0.96 USD per share.

North America

Kellogg North America posted reported net sales of 2.3 billion USD in the third quarter, a reported decrease of 2.7 percent; currency-neutral comparable net sales decreased by 1.4 percent. The U.S. Morning Foods segment posted a currency-neutral comparable net sales decline of 2.6 percent. However, Kellogg-branded cereals gained share in the 12-week, publicly-available data. Currency-neutral comparable net sales in the U.S. Snacks segment decreased by 1.5 percent, although sequential performance improved. The U.S. Specialty Channels segment posted a 6.2 percent increase in currency-neutral comparable net sales in the quarter due to growth in both the Foodservice and Convenience channels. The North America Other segment, which is composed of the U.S. Frozen Foods, Kashi, and Canadian businesses, posted a 3.4 percent decrease in currency-neutral comparable net sales. Reported operating profit in North America decreased by 7.8 percent. Currency-neutral comparable operating profit declined by 3.0 percent; this decline was primarily due to the resetting of incentive compensation. The resetting of incentive compensation lowered North American operating profit growth by approximately eight percentage points.

International

Reported net sales decreased by 12.8 percent in Europe in the third quarter. Currency-neutral comparable net sales decreased by 2.1 percent. In Latin America, reported net sales decreased by 37.1 percent; currency-neutral comparable net sales increased by 23.9 percent. Reported net sales in Asia Pacific decreased by 13.2 percent; currency-neutral comparable net sales increased by 2.2 percent as the result of double-digit growth in the Asian businesses.

Interest and Tax

Kellogg’s interest expense was 56 million USD in the third quarter. The comparable effective tax rate* in the quarter was 25.2 percent; this was due to tax-planning initiatives and several discrete items.

Cash flow

Year-to-date cash flow,* a non-GAAP measure defined as cash from operating activities less capital expenditures, was 580 million USD through the end of the third quarter. The company now expects that full-year cash flow will be approximately 1.1 billion USD; this increase in expectations is due to the better-than-expected performance of working-capital initiatives.

Kellogg Raises Guidance for Operating Cash Flow After Capital Expenditure, Reaffirms Other Full-Year 2015 Currency-Neutral Comparable Guidance

The company reaffirmed previous guidance for currency-neutral comparable net sales, operating profit, and earnings per share in 2015; the company raised guidance for full-year cash flow. Currency-neutral comparable net sales are expected to remain approximately unchanged year-over-year. Kellogg expects full-year 2015 currency-neutral comparable operating profit to decrease at a rate between two and four percent. Full-year 2015 currency-neutral comparable earnings per share are anticipated to be in a range between two percent lower and approximately unchanged. The estimates for currency-neutral comparable operating profit and currency-neutral comparable earnings per share include a negative impact of between three and four percentage points from the rebasing of incentive compensation for 2015. Guidance for both operating profit and earnings per share excludes the impact of mark-to-market adjustments, 2014’s 53rd week, integration costs, costs related to Project K, acquisitions, dispositions, foreign-currency translation, remeasurement of the Venezuelan business, and other items that could affect comparability. Cash flow is now expected to be about 1.1 billion USD, which includes the impact of the cash required by Project K.

Kellogg Reaffirms Previous Guidance for 2016,
Provides Guidance for Earnings Per Share

In addition, Kellogg Company continues to expect that, in 2016, it will achieve its long-term target for currency-neutral comparable net sales of between one percent and three percent, and its long-term target for operating profit growth of between four percent and six percent. The company still expects to meet its long-term target for currency-neutral comparable operating profit growth even if current sales-growth trends continue and 2016’s currency-neutral comparable net sales growth is at the lower end of the company’s long-term target range. This confidence is the result of good productivity programs, continued execution of Project K, and the anticipated implementation of zero-based budgeting. The company expects growth in currency-neutral comparable EPS of between six and eight percent (Image: Kellogg Company).