Kellogg has turned to NPD to try to revitalise flagging cereal sales

Kellogg has turned to NPD to try to revitalise flagging cereal sales

Kellogg today (12 February) lowered its long-term sales target, sending shares in the US cereal-to-snacks group sliding in New York.

The Special K maker, which is facing declining breakfast cereal markets in some developed economies, has set a target for annual revenue growth of 1-3%, down from its previous estimate of 3-4%.

Kellogg maintained its long-term targets for annual comparable operating profit growth of 4-6% and for currency-neutral comparable earnings per share to increase 7-9% a year.

Shares in Kellogg were down 3.54% at US$63.95 at 10:11 ET

The new forecast came alongside Kellogg's 2014 financial results, which outlined a year of falling sales and profits.

Net income reached $633m for the year to 3 January, down from $1.81bn a year earlier. The company's operating profit more than halved from $2.84bn to $1.02bn. In the fourth quarter, Kellogg booked a non-cash mark-to-market adjustment of $822m, primarily driven by the impact changes in interest rates had on its pension plans. Costs from the group's Project K restructuring programme also weighed on results.

Kellogg's comparable operating profit, which excludes factors including M&A, foreign exchange and Project K, fell 3.9%.

On a reported basis, net sales slid 1.4% to $1.6bn. Comparable net sales dropped 2%.

Kellogg saw sales from both its morning foods and snacks divisions fall in North America.

Internationally, the group saw annual and fourth-quarter comparable net sales rise in Latin America. In Europe and Asia Pacific, Kellogg's comparable net sales rose over 2014 as a whole but dropped in the fourth quarter.

"In 2014, we have been addressing the challenges we have faced in some of the company's developed businesses," president and CEO John Bryant said. "Project K, our four-year efficiency-and-effectiveness program, is providing flexibility, and we have invested in brand-building initiatives, in-store sales capabilities, and new, improved products. We expect that 2015 will be a rebuilding year for us and that our investment will provide a strong platform for future growth."

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Kellogg Company Reports Fourth-Quarter and Full-Year 2014 Results, Provides Guidance For 2015, and Changes Its Long-Term Sales Target

BATTLE CREEK, Mich., Feb. 12, 2015 /PRNewswire/ -- Kellogg Company (NYSE: K) today announced that fourth quarter 2014 reported net sales were $3.5 billion, an increase of 0.3 percent from the fourth quarter of 2013.  Fourth quarter comparable net sales* decreased by 2.2 percent.  Full-year 2014 reported net sales decreased by 1.4 percent to $14.6 billion.  Full-year comparable net sales decreased by 2.0 percent.  Comparable net sales results exclude the effects of foreign currency translation, acquisitions, dispositions, costs associated with the efficiency-and-effectiveness program (Project K), differences in the number of shipping days, and integration costs. 

The reported quarterly operating loss was $422 million; this included a significant non-cash mark-to-market adjustment of $822 million, which was primarily driven by the impact that changes in interest rates had on pension plans; comparable operating profit* decreased by 0.1 percent in the fourth quarter.  Comparable results for operating profit exclude the effects of foreign currency translation, acquisitions, dispositions, Project K costs, mark-to-market accounting, differences in the number of shipping days, integration costs, and other factors that affect comparability.  Full-year reported operating profit decreased by 63.9 percent; this included significant impacts from the effect of mark-to-market adjustments and costs associated with Project K.  Full-year comparable operating profit decreased by 3.9 percent. 

* Comparable sales growth, comparable operating profit growth, comparable earnings, currency-neutral comparable earnings, comparable effective tax rate and cash flow 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.

The reported fourth quarter 2014 net earnings loss was $293 million, or a loss of $0.82 per diluted share; comparable earnings* were $0.84 per share; this represented a decrease of 1.2 percent from the fourth quarter of 2013's comparable earnings per share.  Reported full-year 2014 net earnings were $632 million, or $1.75 per diluted share; comparable full-year earnings were $3.81 per share, a decrease of 1.0 percent from 2013's comparable earnings per share.  Please see the table below and the appendices to this press release for detail regarding items that affect comparability. 

 

Reconciliation of Reported to Comparable Earnings Per Share










Fourth Quarter 2014 
($)


Full-Year 2014 
($)








Reported EPS


(0.82)



1.75


Mark-to-Market


(1.52)



(1.42)


Project K


(0.16)



(0.61)


Integration


(0.04)



(0.09)


Other Items


(0.01)



(0.01)


53rd Week


0.07



0.07









Comparable EPS


0.84



3.81


Foreign Exchange


(0.02)



(0.01)
















Currency-Neutral Comparable* EPS


0.86



3.82
















 

"In 2014, we have been addressing the challenges we have faced in some of the company's developed businesses," said John Bryant, Kellogg Company's president and chief executive officer.  "Project K, our four-year efficiency-and-effectiveness program, is providing flexibility, and we have invested in brand-building initiatives, in-store sales capabilities, and new, improved products.  We expect that 2015 will be a rebuilding year for us and that our investment will provide a strong platform for future growth."

North America

Kellogg North America's reported net sales increased by 2.3 percent in the fourth quarter and decreased by 2.2 percent for the full year.  Comparable net sales declined by 3.9 percent for the fourth quarter and by 3.4 percent for the full year.  The U.S. Morning Foods segment posted a decrease in comparable net sales of 7.7 percent in the fourth quarter and a decrease of 5.7 percent for the full year.  U.S. Snacks posted a decline in comparable net sales of 3.1 percent in the fourth quarter and a decline of 2.4 percent for the full year.  The U.S. Specialty Channels business posted a decline in comparable net sales of 1.0 percent in the fourth quarter and a decline of 1.4 percent for the full year.  The North America Other business posted comparable net sales growth of 1.3 percent in the fourth quarter and a decline in comparable net sales of 1.8 percent for the full year.

International

Comparable net sales growth in the Latin American business was 7.2 percent in the fourth quarter; comparable growth for the full year was 3.9 percent.  Comparable net sales in our European business decreased by 1.2 percent in the fourth quarter and by 0.7 percent for the full year.  The Asia Pacific business posted a decline in comparable net sales of 1.2 percent in the fourth quarter and an increase of 0.7 percent for the full year.

Interest and Tax

Kellogg's interest expense totaled $53 million in the fourth quarter and was $209 million for the year.  Including the impact of mark-to-market adjustments and costs related to Project K, the reported effective tax rate was 39.1 percent for the fourth quarter and 22.6 percent for the full year.  Excluding the mark-to-market adjustments and costs related to Project K, the comparable effective tax rate* was 28.2 percent for the year, lower than expectations due to the geographic mix of profits.

 

Cash flow

Cash flow*, a non-GAAP measure defined as cash from operating activities less capital expenditures, was $1.2 billion for the full year; this was greater than expected and was due to improved working capital and changes to tax legislation.  Kellogg repurchased approximately $690 million of shares during the year.     

Kellogg Issues Guidance for 2015

The company issued guidance for comparable net sales in 2015, which are expected to remain approximately unchanged year-over-year.  Kellogg expects full-year 2015 comparable operating profit to decrease at a rate between two and four percent; this includes a negative impact of between three and four percentage points from the rebasing of incentive compensation for 2015.  Full-year 2015 currency-neutral comparable earnings per share are anticipated to be in a range between two percent lower and approximately unchanged; this estimate also includes 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.

Kellogg Announces a Change to Its Long-Term Sales Target

The company also announced that it is making a change to its long-term financial targets.  It now expects low-single-digit (one to three percent) comparable annual revenue growth, lower than the previous target of between three and four percent growth.  The company's targets for mid-single-digit (four to six percent) annual comparable operating profit growth and high-single-digit (seven to nine percent) annual, currency-neutral comparable earnings per share growth remain unchanged.

Original source: Kellogg