Kellogg: Q1/2010 earnings climb 30 percent

Battle Creek / MG. (kc) Kellogg Company 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.

First quarter net earnings were 418 million USD, a 30 percent increase over the first quarter a year ago. First quarter reported earnings per diluted share were 1,09 USD, a 30 percent increase on a reported basis and a 27 percent increase on a currency-neutral basis.

First quarter reported net sales increased five percent to 3,3 billion USD. Internal net sales growth, which excludes the effects of foreign currency translation, rose two percent. Total operating profit for the first quarter 2010 grew 20 percent on a reported basis to 637 million USD, and internal operating profit increased 17 percent. Reported gross margin expanded 190 basis points to 43,0 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 Company´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».

North America: Kellogg North America posted first quarter reported net sales growth of three percent; internal net sales growth was two 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 five percent, reflecting positive growth in all categories. The North America Frozen and Specialty Channels businesses posted an internal net sales decline of three 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 robust gross margin expansion and shifts in the timing of reinvestment in our business.

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

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

Interest and Tax: In the first quarter 2010, Kellogg´s interest expense totaled 65 million USD, an improvement over last year as a result of lower debt. Discrete tax benefits lowered the first quarter effective tax rate to 27,2 percent.

Cash flow: Cash flow, defined as cash from operating activities less capital expenditures, was 190 million USD for the quarter.

Kellogg Affirms 2010 Guidance

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 eleven to 13 percent. The Company reaffirmed its two to three 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 eight to ten percent, above its long-term annual targets. Up-front costs for full-year 2010 are still expected to be approximately 0,16 USD per share.

Kellogg also announced the Kellogg Company Board of Directors authorized a 2,5 billion USD three-year share repurchase program from 2010 through 2012, reinforcing its commitment to returning cash to shareholders. This authorization replaces the previously announced outstanding share buyback program.

CEO Mackay: «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. Our strong start to 2010 increases our visibility for another year of sustainable and dependable performance».