EX-99.1 2 d920332dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO   Kellogg Company News
  For release:   May 5, 2015  
  Analyst Contact:   Simon Burton, CFA   (269) 961-6636
  Media Contact:   Kris Charles   (269) 961-3799

 

 

KELLOGG COMPANY REPORTS FIRST QUARTER 2015 RESULTS,

REAFFIRMS FULL-YEAR CURRENCY-NEUTRAL COMPARABLE GUIDANCE

BATTLE CREEK, Mich. – Kellogg Company (NYSE: K) today announced currency-neutral comparable first-quarter results for net sales, operating profit, and earnings per share that were greater than the company’s expectations.

 

Financial Summary:    Quarter ended  
(millions, except per share data)    April 4,
2015		      March 29,
2014		      %
Change		  

Reported Net Sales

    $ 3,556       $ 3,742         -5.0 % 

Comparable Net Sales *

    $ 3,553       $ 3,740         -5.0 % 

Currency Neutral Comparable Net Sales *

    $ 3,729       $ 3,740         -0.3 % 

Reported Operating Profit

    $ 384       $ 614         -37.5 % 

Comparable Operating Profit *

    $ 527       $ 559         -5.8 % 

Currency Neutral Comparable Operating Profit *

    $ 548       $ 559         -1.9 % 

Reported Net Income (Loss) Attributable to Kellogg Company

    $ 227       $ 406         -44.0 % 

Comparable Net Income (Loss) Attributable to Kellogg Company *

    $ 351       $ 367         -4.3 % 

Currency Neutral Comparable Net Income (Loss) Attributable to Kellogg Company *

    $ 370       $ 367         0.9 % 

Reported Earnings Per Share

    $ 0.64       $ 1.12         -42.9 % 

Comparable Earnings Per Share *

    $ 0.98       $ 1.01         -3.0 % 

Currency Neutral Comparable Earnings Per Share *

    $ 1.04       $ 1.01         3.0 % 

 

* Non-GAAP financial measures. See the tables herein for important information regarding these measures and a full reconciliation to the most comparable GAAP measure.

 

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As detailed above, first quarter 2015 reported net sales decreased by 5.0 percent to $3.6 billion, primarily due to the effect of currency translation. Currency-neutral comparable net sales decreased by 0.3 percent over the same period; this result included growth in each of the international regions. First quarter 2015 reported operating profit was $384 million, a decline of 37.5 percent; this decrease was driven primarily by the impact that asset returns and changes in interest rates had on pension plans. The decline in currency-neutral comparable operating profit was largely the result of slightly lower net sales.

Reported earnings for the first quarter of 2015 were $227 million, or $0.64 per share, a decrease of 43 percent from the $1.12 per share reported in the first quarter of last year. This quarter’s reported earnings per share included negative impacts from mark-to-market of $0.13 per share and costs associated with the Project K efficiency and effectiveness program of $0.13 per share. In addition, reported results included $0.01 per share of integration costs related to the acquisition of Pringles and Bisco Misr and $0.07 of other costs. Excluding these items, comparable first quarter 2015 earnings were $0.98 per share, greater than the company’s expectations. This result included a negative impact of $0.06 per share from currency translation; comparable earnings per share excluding the impact of currencies would have been $1.04 per share.

 

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Reconciliation of Reported to Currency-Neutral Comparable Earnings Per Share

  
     First Quarter 2015
($)		  

Reported EPS

      0.64   

Mark-to-Market

      (0.13 ) 

Project K

      (0.13 ) 

Integration

      (0.01 ) 

Other Items

      (0.07 ) 

53rd Week

      —     

Comparable EPS

      0.98   

Foreign Exchange

      (0.06 ) 

Currency-Neutral

   

Comparable* EPS

      1.04   

“We were pleased to report improved sales trends in the first quarter. In fact, our results exceeded our expectations and we are on-track for the year,” said John Bryant, Kellogg Company’s chairman and chief executive officer. “We’ve made great progress with Project K and are reinvesting to drive profitable sales growth.”

North America

Net sales posted by Kellogg North America were $2.4 billion in the first quarter, a reported decrease of 3.7 percent; currency-neutral comparable net sales decreased by 2.8 percent. The U.S. Morning Foods segment posted a currency-neutral comparable net sales decline of 2.9 percent, which included improved trends in the Cereal business. Currency-neutral comparable net sales in the U.S. Snacks segment decreased by 1.1 percent, also reflecting an improvement in sales trends. The U.S. Specialty Channels segment posted a 2.5 percent decline in currency-neutral comparable

 

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net sales in the quarter due to a discrete item. The North America Other segment, which is now composed of the U.S. Frozen Foods, Kashi, and Canadian businesses, posted a 6.1 percent decrease in currency-neutral comparable net sales. Reported operating profit in North America decreased by 9.9 percent; currency-neutral comparable operating profit declined by 8.0 percent, largely as the result of lower sales.

International

Reported net sales decreased by 13.8 percent in Europe in the quarter; currency-neutral comparable net sales increased by 1.0 percent including double-digit currency-neutral comparable net sales growth for the Pringles business. In Latin America, reported net sales increased by 6.3 percent; currency-neutral comparable net sales increased by 15.7 percent, including broad-based growth across the region. Reported net sales in Asia Pacific decreased by 5.3 percent; currency-neutral comparable net sales increased by 4.0 percent due to good rates of growth in the Asian businesses.

Interest and Tax

Kellogg’s interest expense was $54 million in the first quarter. The comparable effective tax rate* in the first quarter of 2015 was 25.4 percent, lower than last year due to certain discrete items.

 

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Cash flow

Cash flow,* a non-GAAP measure defined as cash from operating activities less capital expenditures, was $12 million for the quarter. This year-over-year decline was primarily due to earnings results, the timing of an interest payment, and increased cash costs associated with Project K. The company continues to expect that cash flow for the full year will be approximately $1.0 billion. Kellogg repurchased $285 million of shares during the first quarter.

Kellogg Reaffirms Full-Year Currency-Neutral Comparable 2015 Guidance

The company reaffirmed previous guidance for currency-neutral comparable net sales, operating profit, and earnings per share in 2015; the company also reaffirmed 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, and other items that could affect comparability. Cash flow is expected to be approximately $1.0 billion, which includes the cash required by Project K.

 

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Conference Call / Webcast

Kellogg will host a conference call to discuss these results on Tuesday, May 5th, 2015 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 (855) 209-8258 in the U.S., and (412) 542-4104 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Information regarding the rebroadcast 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 2014 sales of approximately $14.6 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®, Kellogg’s Frosted Flakes®, Pop-Tarts®, Kellogg’s 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

 

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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 Company’s efficiency-and-effectiveness program (Project K), the integration of acquired businesses, 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, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, 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 implement Project K as planned, whether the expected amount of costs associated with Project K will differ from forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions 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

 

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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.

[Kellogg Company Financial News]

 

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)

 

     Quarter ended  

(Results are unaudited)

    April 4,
2015		     March 29,
2014		  

Net sales

    $ 3,556      $ 3,742   

Cost of goods sold

      2,311        2,238   

Selling, general and administrative expense

      861        890   
  

 

 

    

 

 

  

Operating profit

   384      614   

Interest expense

   54      52   

Other income (expense), net

   (26 )    10   
  

 

 

    

 

 

  

Income before income taxes

   304      572   

Income taxes

   76      165   

Earnings (loss) from joint ventures

   (1 )    (1 ) 
  

 

 

    

 

 

  

Net income

 $ 227    $ 406   
  

 

 

    

 

 

  

Net income (loss) attributable to noncontrolling interests

   —        —     
  

 

 

    

 

 

  

Net income attributable to Kellogg Company

 $ 227    $ 406   
  

 

 

    

 

 

  

Per share amounts:

Basic

 $ .64    $ 1.13   

Diluted

 $ .64    $ 1.12   

Dividends per share

 $ .49    $ .46   
  

 

 

    

 

 

  

Average shares outstanding:

Basic

   355      360   
  

 

 

    

 

 

  

Diluted

   357      362   
  

 

 

    

 

 

  

Actual shares outstanding at period end

   353      358   
  

 

 

    

 

 

  

 

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Kellogg Company and Subsidiaries

SELECTED OPERATING SEGMENT DATA

(millions)

 

     Quarter ended  

(Results are unaudited)

    April 4,
2015		     March 29,
2014		  

Net sales

     

U.S. Morning Foods

    $ 776      $ 799   

U.S. Snacks

      854        864   

U.S. Specialty

      361        372   

North America Other

      433        482   

Europe

      607        705   

Latin America

      295        278   

Asia Pacific

      230        242   
  

 

 

    

 

 

  

Consolidated

 $ 3,556    $ 3,742   
  

 

 

    

 

 

  

Operating profit

U.S. Morning Foods

 $ 127    $ 126   

U.S. Snacks

   80      86   

U.S. Specialty

   78      87   

North America Other

   59      83   

Europe

   61      65   

Latin America

   51      48   

Asia Pacific

   12      16   
  

 

 

    

 

 

  

Total Reportable Segments

   468      511   

Corporate

   (84 )    103   
  

 

 

    

 

 

  

Consolidated

 $ 384    $ 614   
  

 

 

    

 

 

  

 

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)

 

     Quarter ended  

(unaudited)

    April 4,
2015		     March 29,
2014		  

Operating activities

     

Net income

    $ 227      $ 406   

Adjustments to reconcile net income to operating cash flows:

    

Depreciation and amortization

     131        116   

Postretirement benefit plan expense (benefit)

      (21 )      (22 ) 

Deferred income taxes

     (2 )      45   

Other

     46        6   

Postretirement benefit plan contributions

     (12 )      (28 ) 

Changes in operating assets and liabilities, net of acquisitions

      (274 )      (255 ) 
  

 

 

    

 

 

  

Net cash provided by (used in) operating activities

   95      268   
  

 

 

    

 

 

  

Investing activities

Additions to properties

   (83 )    (97 ) 

Acquisitions, net of cash acquired

  (117 )    —     

Other

   3      (2 ) 
  

 

 

    

 

 

  

Net cash provided by (used in) investing activities

   (197 )    (99 ) 
  

 

 

    

 

 

  

Financing activities

Net issuances (reductions) of notes payable

   (19 )    986   

Issuances of long-term debt

  672      —     

Reductions of long-term debt

   (243 )    (682 ) 

Net issuances of common stock

   57      37   

Common stock repurchases

   (285 )    (321 ) 

Cash dividends

   (174 )    (166 ) 

Other

   5      (1 ) 
  

 

 

    

 

 

  

Net cash provided by (used in) financing activities

   13      (147 ) 
  

 

 

    

 

 

  

Effect of exchange rate changes on cash and cash equivalents

   (5 )    (11 ) 
  

 

 

    

 

 

  

Increase (decrease) in cash and cash equivalents

   (94 )    11   

Cash and cash equivalents at beginning of period

   443      273   
  

 

 

    

 

 

  

Cash and cash equivalents at end of period

 $ 349    $ 284   
  

 

 

    

 

 

  

Supplemental financial data:

Net cash provided by (used in) operating activities

 $ 95    $ 268   

Additions to properties

   (83 )    (97 ) 
  

 

 

    

 

 

  

Cash Flow (operating cash flow less property additions) (a)

 $ 12    $ 171   
  

 

 

    

 

 

  

 

(a) We use this non-GAAP measure of cash flow to focus management and investors on the amount of cash available for debt reduction, dividend distributions, acquisition opportunities, and share repurchase.

 

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Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)

 

     April 4,
2015
(unaudited)		     January 3,
2015
*		  

Current assets

     

Cash and cash equivalents

    $ 349      $ 443   

Accounts receivable, net

      1,503        1,276   

Inventories:

     

Raw materials and supplies

      353        327   

Finished goods and materials in process

      846        952   

Deferred income taxes

      170        184   

Other prepaid assets

      220        158   
  

 

 

    

 

 

  

Total current assets

   3,441      3,340   

Property, net of accumulated depreciation of $5,466 and $5,526

   3,719      3,769   

Goodwill

   4,993      4,971   

Other intangibles, net of accumulated amortization of $45 and $43

   2,282      2,295   

Pension

   254      250   

Other assets

   519      528   
  

 

 

    

 

 

  

Total assets

$ 15,208    $ 15,153   
  

 

 

    

 

 

  

Current liabilities

Current maturities of long-term debt

 $ 360    $ 607   

Notes payable

   809      828   

Accounts payable

   1,537      1,528   

Accrued advertising and promotion

   453      446   

Accrued income taxes

   72      39   

Accrued salaries and wages

   237      320   

Other current liabilities

   543      596   
  

 

 

    

 

 

  

Total current liabilities

   4,011      4,364   

Long-term debt

   6,561      5,935   

Deferred income taxes

   764      726   

Pension liability

   760      777   

Nonpension postretirement benefits

   75      82   

Other liabilities

   385      418   

Commitments and contingencies

Equity

Common stock, $.25 par value

   105      105   

Capital in excess of par value

   689      678   

Retained earnings

   6,739      6,689   

Treasury stock, at cost

   (3,696 )    (3,470 ) 

Accumulated other comprehensive income (loss)

   (1,291 )    (1,213 ) 
  

 

 

    

 

 

  

Total Kellogg Company equity

   2,546      2,789   

Noncontrolling interests

   106      62   
  

 

 

    

 

 

  

Total equity

   2,652      2,851   
  

 

 

    

 

 

  

Total liabilities and equity

$ 15,208    $ 15,153   
  

 

 

    

 

 

  

 

* Condensed from audited financial statements.

 

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Kellogg Company and Subsidiaries

Analysis of net sales and operating profit performance

First Quarter of 2015 versus 2014

 

(dollars in millions)

   U.S.
Morning Foods		     U.S.
Snacks		     U.S.
Specialty		     North America
Other		     North
America		     Europe     Latin
America		     Asia
Pacific		     Corporate     Consolidated  

2015 net sales

   $ 776      $ 854      $ 361      $ 433      $ 2,424      $ 607      $ 295      $ 230      $ 0      $ 3,556   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2014 net sales

 $ 799    $ 864    $ 372    $ 482    $ 2,517    $ 705    $ 278    $ 242    $ 0    $ 3,742   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% change - 2015 vs. 2014:

As Reported

   -2.9 %    -1.1 %    -3.0 %    -10.2 %    -3.7 %    -13.8 %    6.3 %    -5.3 %    0.0 %    -5.0 % 

Project K (b)

   0.0 %    0.0 %    0.0 %    -0.5 %    -0.1 %    0.0 %    0.0 %    0.0 %    0.0 %    -0.1 % 

Acquisitions/divestitures (d)

   0.0 %    0.0 %    -0.5 %    0.0 %    -0.1 %    1.1 %    0.0 %    0.0 %    0.0 %    0.2 % 

Differences in shipping days

   0.0 %    0.0 %    0.0 %    0.0 %    0.0 %    -0.4 %    0.0 %    0.0 %    0.0 %    -0.1 % 

Comparable growth (e)

   -2.9 %    -1.1 %    -2.5 %    -9.7 %    -3.5 %    -14.5 %    6.3 %    -5.3 %    0.0 %    -5.0 % 

Foreign currency impact

   0.0 %    0.0 %    0.0 %    -3.6 %    -0.7 %    -15.5 %    -9.4 %    -9.3 %    0.0 %    -4.7 % 

Currency-Neutral Comparable growth (f)

   -2.9 %    -1.1 %    -2.5 %    -6.1 %    -2.8 %    1.0 %    15.7 %    4.0 %    0.0 %    -0.3 % 

Volume (tonnage) (g)

   -2.3 %    1.4 %    4.5 %    5.0 %    0.0 %    -0.7 % 

Pricing/mix

   -0.5 %    -0.4 %    11.2 %    -1.0 %    0.0 %    0.4 % 

(dollars in millions)

   U.S.
Morning Foods		     U.S.
Snacks		     U.S.
Specialty		     North America
Other		     North
America		     Europe     Latin
America		     Asia
Pacific		     Corporate     Consolidated  

2015 operating profit

   $ 127      $ 80      $ 78      $ 59      $ 344      $ 61      $ 51      $ 12      ($ 84 )    $ 384   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2014 operating profit

 $ 126    $ 86    $ 87    $ 83    $ 382    $ 65    $ 48    $ 16    $ 103    $ 614   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% change - 2015 vs. 2014:

As Reported

   0.2 %    -7.3 %    -10.2 %    -27.9 %    -9.9 %    -5.8 %    4.8 %    -22.8 %    -182.1 %    -37.5 % 

Mark-to-market (a)

   0.0 %    0.0 %    0.0 %    0.0 %    0.0 %    0.0 %    0.0 %    0.0 %    -154.1 %    -28.1 % 

Project K (b)

   1.8 %    -3.1 %    -0.1 %    -4.2 %    -1.2 %    -9.4 %    8.1 %    2.3 %    -213.8 %    -3.5 % 

Integration impact (c)

   0.0 %    -0.1 %    0.0 %    0.0 %    0.0 %    0.9 %    -0.1 %    -8.9 %    -24.8 %    -0.2 % 

Acquisitions/divestitures (d)

   0.0 %    0.0 %    0.1 %    0.0 %    0.0 %    0.7 %    0.0 %    0.0 %    0.0 %    0.2 % 

Differences in shipping days

   0.0 %    0.0 %    0.0 %    0.0 %    0.0 %    -0.5 %    0.0 %    0.0 %    0.0 %    -0.1 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Comparable growth (e)

   -1.6 %    -4.1 %    -10.2 %    -23.7 %    -8.7 %    2.5 %    -3.2 %    -16.2 %    210.6 %    -5.8 % 

Foreign currency impact

   0.4 %    0.0 %    0.0 %    -4.3 %    -0.7 %    -10.3 %    -8.4 %    -13.0 %    -87.1 %    -3.9 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Currency-Neutral Comparable growth (f)

   -2.0 %    -4.1 %    -10.2 %    -19.4 %    -8.0 %    12.8 %    5.2 %    -3.2 %    297.7 %    -1.9 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense. Actuarial gains/losses for pension plans are recognized in the year they occur. A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur.
(b) Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.
(c) Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.
(d) Includes impact of Bisco Misr acquisition during the first quarter of 2015 and the divestiture of Loma Linda in 2014.
(e) Comparable net sales growth and comparable operating profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.
(f) Currency-Neutral Comparable Net Sales growth and Currency Neutral Comparable Operating Profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.
(g) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.

 

- more -

 

- 13 -

Kellogg Company and Subsidiaries

Restructuring and cost reduction activities

$ millions

 

     Quarter ended April 4, 2015  
     Net Sales      Cost of goods
sold		      Selling, general and
administrative
expense		      Total  

2015

           

U.S. Morning Foods

    $ —         $ 5       $ 3       $ 8   

U.S. Snacks

      —           5         4         9   

U.S. Specialty

      —           —           1         1   

North America Other

      2         2         2         6   

Europe

      —           16         3         19   

Latin America

      —           —           —           —     

Asia Pacific

      —           4         1         5   

Corporate

      —           —           20         20   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

 $ 2    $ 32    $ 34    $ 68   
  

 

 

     

 

 

     

 

 

     

 

 

  
     Quarter ended March 29, 2014  
     Net Sales      Cost of goods
sold		      Selling, general and
administrative
expense		      Total  

2014

           

U.S. Morning Foods

    $ —         $ 9       $ 2       $ 11   

U.S. Snacks

      —           5         2         7   

U.S. Specialty

      —           —           1         1   

North America Other

      —           2         1         3   

Europe

      —           5         7         12   

Latin America

      —           —           4         4   

Asia Pacific

      —           4         2         6   

Corporate

      —           —           10         10   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

 $ —      $ 25    $ 29    $ 54   
  

 

 

     

 

 

     

 

 

     

 

 

  

2015 Variance - better(worse) than 2014

U.S. Morning Foods

 $ —      $ 4    $ (1 )  $ 3   

U.S. Snacks

   —        —        (2 )    (2 ) 

U.S. Specialty

   —        —        —        —     

North America Other

   (2 )    —        (1 )    (3 ) 

Europe

   —        (11 )    4      (7 ) 

Latin America

   —        —        4      4   

Asia Pacific

   —        —        1      1   

Corporate

   —        —        (10 )    (10 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

 $ (2 )  $ (7 )  $ (5 )  $ (14 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

- more -

 

- 14 -

Kellogg Company and Subsidiaries

Integration Costs*

$ millions

 

     Quarter ended April 4, 2015  
     Net Sales      Cost of goods
sold		      Selling, general and
administrative
expense		      Total  

2015

           

Europe

    $ —         $ 3       $ 2       $ 5   

Asia Pacific

      —           3         —           3   

Corporate

      —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

 $ —      $ 6    $ 2    $ 8   
  

 

 

     

 

 

     

 

 

     

 

 

  
     Quarter ended March 29, 2014  
     Net Sales      Cost of goods
sold		      Selling, general and
administrative
expense		      Total  

2014

           

Europe

    $ —         $ 4       $ 2       $ 6   

Asia Pacific

      —           —           —           —     

Corporate

      —           —           1         1   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

 $ —      $ 4    $ 3    $ 7   
  

 

 

     

 

 

     

 

 

     

 

 

  

2015 Variance - better(worse) than 2014

Europe

 $ —      $ 1    $ —      $ 1   

Asia Pacific

   —        (3 )    —        (3 ) 

Corporate

   —        —        1      1   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

 $ —      $ (2 )  $ 1    $ (1 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

* Integration costs are charges incurred by the Company as a direct result of the work performed for the acquisition of the Pringles and Bisco Misr businesses.

 

- more -

 

- 15 -

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Net Sales to Currency-Neutral Comparable Net Sales

 

Quarter ended April 4, 2015

 

  

(millions)

  U.S.
Morning Foods		     U.S.
Snacks		     U.S.
Specialty		     North
America Other		     Europe     Latin America     Asia Pacific     Corporate     Kellogg
Consolidated		  

Reported Net Sales

   $ 776      $ 854      $ 361      $ 433      $ 607      $ 295      $ 230      $ —        $ 3,556   

Project K(a)

     —          —          —          (2 )      —          —          —          —          (2 ) 

Acquisitions/divestitures(b)

     —          —          —          —          8        —          —          —          8   

Differences in shipping days

     —          —          —          —          (3 )      —          —          —          (3 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Comparable Net Sales(c)

 $ 776    $ 854    $ 361    $ 435    $ 602    $ 295    $ 230    $ —      $ 3,553   

Foreign currency impact

   —        —        —        (18 )    (110 )    (26 )    (22 )    —        (176 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Currency-Neutral Comparable Net Sales(d)

 $ 776    $ 854    $ 361    $ 453    $ 712    $ 321    $ 252    $ —      $ 3,729   

Quarter ended March 29, 2014

 

  

(millions)

   U.S.
Morning Foods		     U.S.
Snacks		     U.S.
Specialty		     North
America Other		     Europe     Latin America     Asia Pacific     Corporate     Kellogg
Consolidated		  

Reported Net Sales

   $ 799      $ 864      $ 372      $ 482      $ 705      $ 278      $ 242      $ —        $ 3,742   

Project K(a)

     —          —          —          —          —          —          —          —          —     

Acquisitions/divestitures(b)

     —          —          2        —          —          —          —          —          2   

Differences in shipping days

     —          —          —          —          —          —          —          —          —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Comparable Net Sales(c)

 $ 799    $ 864    $ 370    $ 482    $ 705    $ 278    $ 242    $ —      $ 3,740   

Foreign currency impact

   —        —        —        —        —        —        —        —        —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Currency-Neutral Comparable Net Sales(d)

 $ 799    $ 864    $ 370    $ 482    $ 705    $ 278    $ 242    $ —      $ 3,740   

 

(a) Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.
(b) Includes impact of Bisco Misr acquisition during Q1 2015 and the 2014 divestiture of Loma Linda.
(c) Comparable net sales is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.
(d) Currency-Neutral Comparable Net Sales is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.

 

- more -

 

- 16 -

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Comparable Operating Profit

Quarter ended April 4, 2015

 

(millions)

   U.S.
Morning Foods		     U.S.
Snacks		     U.S.
Specialty		     North
America Other		     Europe     Latin America     Asia Pacific     Corporate     Kellogg
Consolidated		  

Reported Operating Profit

   $ 127      $ 80      $ 78      $ 59      $ 61      $ 51      $ 12      $ (84 )    $ 384   

Mark-to-market(a)

     —          —          —          —          —          —          —          (67 )      (67 ) 

Project K(b)

     (8 )      (9 )      (1 )      (6 )      (19 )      —          (5 )      (20 )      (68 ) 

Integration impact(c)

     —          —          —          —          (5 )      —          (3 )      —          (8 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Comparable Operating Profit(d)

 $ 135    $ 89    $ 79    $ 65    $ 85    $ 51    $ 20    $ 3    $ 527   

Foreign currency impact

   1      —        —        (4 )    (8 )    (4 )    (2 )    (4 )    (21 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Currency-Neutral Comparable Operating Profit(e)

 $ 134    $ 89    $ 79    $ 69    $ 93    $ 55    $ 22    $ 7    $ 548   
Quarter ended March 29, 2014   

(millions)

  U.S.
Morning Foods		     U.S.
Snacks		     U.S.
Specialty		     North
America Other		     Europe     Latin America     Asia Pacific     Corporate     Kellogg
Consolidated		  

Reported Operating Profit

   $ 126      $ 86      $ 87      $ 83      $ 65      $ 48      $ 16      $ 103      $ 614   

Mark-to-market(a)

     —          —          —          —          —          —          —          116        116   

Project K(b)

     (11 )      (7 )      (1 )      (3 )      (12 )      (4 )      (6 )      (10 )      (54 ) 

Integration impact(c)

     —          —          —          —          (6 )      —          —          (1 )      (7 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Comparable Operating Profit(d)

 $ 137    $ 93    $ 88    $ 86    $ 83    $ 52    $ 22    $ (2 )  $ 559   

Foreign currency impact

   —        —        —        —        —        —        —        —        —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Currency-Neutral Comparable Operating Profit(e)

 $ 137    $ 93    $ 88    $ 86    $ 83    $ 52    $ 22    $ (2 )  $ 559   

 

(a) Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense. Actuarial gains/losses for pension plans are recognized in the year they occur. A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur.
(b) Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.
(c) Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.
(d) Comparable operating profit is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.
(e) Currency-Neutral Comparable operating profit is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.

 

- more -

 

- 17 -

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Net Income Attributable to Kellogg

to Currency-Neutral Comparable Net Income Attributable to Kellogg

 

     Quarter ended  

(millions)

    April 4,
2015		      March 29,
2014		  

Reported Net Income Attributable to Kellogg

    $ 227       $ 406   

Mark-to-market(a)

      (46 )       80   

Project K(b)

      (47 )       (36 ) 

Other costs(c)

      (25 )       —     

Integration costs(d)

      (6 )       (5 ) 
  

 

 

     

 

 

  

Comparable Net Income Attributable to Kellogg(e)

$ 351    $ 367   

Foreign currency impact

   (19 )    —     
  

 

 

     

 

 

  

Currency-Neutral Comparable Net Income Attributable to Kellogg(f)

 $ 370    $ 367   
  

 

 

     

 

 

  

 

(a) Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense. Actuarial gains/losses for pension plans are recognized in the year they occur. A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur.
(b) Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.
(c) During the quarter ended April 4, 2015, the Company has determined that certain assets related to a portion of the business may not be fully recoverable and has recorded a non-cash charge within other income (expense).
(d) Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.
(e) Comparable Net Income Attributable to Kellogg are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.
(f) Currency-Neutral Comparable Net Income Attributable to Kellogg are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.

 

- more -

 

- 18 -

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported EPS to Currency-Neutral

Comparable EPS

 

     Quarter ended  
     April 4,
2015		      March 29,
2014		  

Reported EPS

    $ 0.64       $ 1.12   

Mark-to-market(a)

      (0.13 )       0.22   

Project K(b)

      (0.13 )       (0.10 ) 

Other costs(c)

      (0.07 )       —     

Integration impact(d)

      (0.01 )       (0.01 ) 
  

 

 

     

 

 

  

Comparable EPS(e)

$ 0.98    $ 1.01   

Foreign currency impact

   (0.06 )    —     
  

 

 

     

 

 

  

Currency-Neutral Comparable EPS(f)

 $ 1.04    $ 1.01   
  

 

 

     

 

 

  

 

(a) Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense. Actuarial gains/losses for pension plans are recognized in the year they occur. A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2014 and 2013. The amounts capitalized at the end of 2014 and 2013 have been recognized in the first quarter of 2015 and 2014, respectively. Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities. The resulting gains/losses are recognized in the quarter they occur.
(b) Costs incurred related primarily to execution of Project K, a four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.
(c) During the quarter ended April 4, 2015, the Company has determined that certain assets related to a portion of the business may not be fully recoverable and has recorded a non-cash charge within other income (expense).
(d) Includes impact of integration costs associated with the Bisco Misr and Pringles acquisitions.
(e) Comparable EPS is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.
(f) Currency-Neutral Comparable EPS is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. We believe the use of such non-GAAP measure provides increased transparency and assists in understanding our comparable operating performance.

 

- more -

 

- 19 -

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Effective Tax Rate

to Currency-Neutral Comparable Effective Tax Rate

 

     Quarter ended  
     April 4, 2015     March 29, 2014  

Reported Effective Tax Rate

      25.1 %      28.9 % 

Mark-to-market(a)

      -1.0 %      0.5 % 

Project K(b)

      -0.8 %      -0.4 % 

Other costs(c)

      1.4 %      0.0 % 

Integration impact

      0.1 %      0.0 % 
  

 

 

    

 

 

  

Comparable Effective Tax Rate(d)

   25.4 %    28.8 % 

Foreign currency impact

   0.7 %    0.0 % 
  

 

 

    

 

 

  

Currency-Neutral Comparable Effective Tax Rate(e)

   24.7 %    28.8 % 
  

 

 

    

 

 

  

 

(a) Mark-to-market adjustments, in general, were incurred in jurisdictions with tax rates higher than our reported effective tax rate during the quarters ended April 4, 2015 and March 29, 2014.
(b) Costs incurred related to the execution of restructuring and cost reduction activities, in general, were incurred in jurisdictions with tax rates higher than our effective tax rate during the quarters ended April 4, 2015 and March 29, 2014.
(c) During the quarter ended April 4, 2015, the Company has determined that certain assets related to a portion of the business may not be fully recoverable and has recorded a non-cash charge within other income (expense).
(d) Comparable Effective Tax Rate is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.
(e) Currency-Neutral Comparable Effective Tax Rate is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.

 

- more -

 

- 20 -

Kellogg Company and Subsidiaries

RECAST OPERATING SEGMENT DATA

 

2014 (millions)    Quarter ended     Year-to-date period ended  
    

March 29,

2014

     

June 28,

2014

    

September 27,

2014

    

January 3,

2015

    

June 28,

2014

     

September 27,

2014

     

January 3,

2015

  

Net Sales (Recast*)

                  

U.S. Morning Foods

    $ 799       $ 759      $ 782      $ 768      $ 1,558       $ 2,340       $ 3,108   

U.S. Snacks

      864         851        807        807        1,715         2,522         3,329   

U.S. Specialty

      372         276        270        280        648         918         1,198   

North America Other

      482         464        470        448        946         1,416         1,864   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

North America Total

   2,517      2,350      2,329      2,303      4,867      7,196      9,499   

Europe

   705      767      720      677      1,472      2,192      2,869   

Latin America

   278      320      320      287      598      918      1,205   

Asia Pacific

   242      248      270      247      490      760      1,007   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

Consolidated

 $ 3,742    $ 3,685    $ 3,639    $ 3,514    $ 7,427    $ 11,066    $ 14,580   

Operating Profit (Recast*)

U.S. Morning Foods

 $ 126    $ 137    $ 115    $ 101    $ 263    $ 378    $ 479   

U.S. Snacks

   86      124      59      95      210      269      364   

U.S. Specialty

   87      63      59      57      150      209      266   

North America Other

   83      74      69      68      157      226      294   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

North America Total

   382      398      302      321      780      1,082      1,403   

Europe

   65      50      59      58      115      174      232   

Latin America

   48      47      50      24      95      145      169   

Asia Pacific

   16      5      18      14      21      39      53   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

Total Reportable Segments

   511      500      429      417      1,011      1,440      1,857   

Corporate

   103      (33 )    (64 )    (839 )    70      6      (833 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

Consolidated

 $ 614    $ 467    $ 365    $ (422 )  $ 1,081    $ 1,446    $ 1,024   

 

* During the first quarter of 2015, the Kashi operating segment was established and is included in North America Other. The Kashi financial results that were previously included in the U.S. Morning Foods, U.S. Snacks, and U.S. Frozen Foods operating segments are now reported in the Kashi operating segment which is reported in North America Other. Other business unit re-organizations occurred between Europe and Asia Pacific.

 

2014 (millions)    Quarter ended     Year-to-date period ended  
     March 29,
2014		      June 28,
2014		     September 27,
2014		     January 3,
2015		     June 28,
2014		      September 27,
2014		      January 3,
2015		  

Net Sales (As originally reported)

                  

U.S. Morning Foods

    $ 861       $ 820      $ 841      $ 816      $ 1,681       $ 2,522       $ 3,338   

U.S. Snacks

      903         893        849        850        1,796         2,645         3,495   

U.S. Specialty

      372         276        270        280        648         918         1,198   

North America Other

      381         361        369        357        742         1,111         1,468   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

North America Total

   2,517      2,350      2,329      2,303      4,867      7,196      9,499   

Europe

   708      772      726      681      1,480      2,206      2,887   

Latin America

   278      320      320      287      598      918      1,205   

Asia Pacific

   239      243      264      243      482      746      989   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

Consolidated

 $ 3,742    $ 3,685    $ 3,639    $ 3,514    $ 7,427    $ 11,066    $ 14,580   

Operating Profit (As originally reported)

U.S. Morning Foods

 $ 128    $ 143    $ 118    $ 101    $ 271    $ 389    $ 490   

U.S. Snacks

   95      130      67      103      225      292      395   

U.S. Specialty

   87      63      59      57      150      209      266   

North America Other

   72      62      58      60      134      192      252   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

North America Total

   382      398      302      321      780      1,082      1,403   

Europe

   67      53      61      59      120      181      240   

Latin America

   48      47      50      24      95      145      169   

Asia Pacific

   14      2      16      13      16      32      45   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

Total Reportable Segments

   511      500      429      417      1,011      1,440      1,857   

Corporate

   103      (33 )    (64 )    (839 )    70      6      (833 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

Consolidated

 $ 614    $ 467    $ 365    $ (422 )  $ 1,081    $ 1,446    $ 1,024   

# # #

 

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