Kellogg Company (NYSE: K – news) continued to build a record of growth during the second quarter of 2000. Excluding charges, Kellogg’s operating profit was $279.9 million, up 3.2 percent from last year’s $271.3 million; net earnings were $165.6 million, up 7.4 percent from last year’s $154.2 million; and earnings per share were $.41, up 7.9 percent from last year’s $.38.

Net sales rose 0.9 percent to $1.80 billion, compared to $1.78 billion last year. Excluding acquisitions, divestitures, and the negative impact of foreign exchange rates, net sales were up 3.1 percent.

“This marks our fifth consecutive quarter of year-over-year growth in operating profit, net earnings, and earnings per share, excluding charges, and we will continue building on that record,” said Carlos M. Gutierrez, Kellogg Company chairman of the board and chief executive officer.

“In the U.S. cereal business, we continued the market share recovery that began in the first quarter,” Gutierrez said, noting that Kellogg’s U.S. retail cereal volume grew 4.7 percent in a soft category during the second quarter. Gutierrez said that while Kellogg’s U.S. convenience foods growth slowed in the quarter due to a difficult comparison with 1999, the company expects this business to return to better growth behind the execution of new-product and marketing programs in the second half of the year.

Other highlights from the second quarter:

  • Total company volume, excluding the impact of acquisitions and divestitures, increased by 2.2 percent.
  • Kellogg Europe achieved a 16 percent increase in operating profit, driven by a strong gain in convenience foods volume, favorable strategic sourcing efforts, and a timing-related decline in marketing expense.
  • Kellogg Latin America’s operating profit continued to grow rapidly, up 13 percent, paced by ongoing volume strength in Kellogg’s fast-growing Mexican cereal business. Volume in Mexico was at a record level in both May and June, driven by cereal growth and continued expansion of the company’s high- potential Mexican convenience foods business.
  • Planned heavy investment in new-business development during the quarter reduced operating profit in Asia-Pacific. Kellogg’s investment in this region, however, helped lead to an overall increase in volume, including strong volume growth in the company’s Australian convenience foods business.
  • The acquisition of Kashi Company, a leading natural cereal company, further strengthened the potential of Kellogg’s natural and functional foods division.

Gutierrez said Kellogg continues to expect to deliver its second consecutive year of low double-digit growth in earnings per share.

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For the six months ended June 30, excluding charges, operating profit was $565.1 million, up 6.5 percent from last year’s $530.8 million; net earnings were $327.3 million, up 9.6 percent from last year’s $298.6 million; and earnings per share were $0.81, up 9.5 percent from last year’s $0.74. Net sales were $3.55 billion, up 0.7 percent from last year’s $3.53 billion. Excluding acquisitions, divestitures, and the negative impact of foreign exchange rates, six months net sales were up 2.5 percent.

During the second quarter of 2000, consistent with a previous announcement, the company recorded a restructuring charge of $21.3 million ($14.7 million after tax or $.04 per share) related to a supply chain efficiency initiative in Europe. Including this charge, second quarter 2000 operating profit was $258.6 million, second quarter net earnings were $150.9 million, second quarter earnings per share were $.37, six months operating profit was $543.8 million, six months net earnings were $312.6 million, and six months earnings per share were $.77. Including a 1999 first quarter charge, 1999 six months operating profit was $494.0 million, six months net earnings were $273.0 million, and six months earnings per share were $.67.

Kellogg Company is the world’s leading producer of cereal and a leading producer of convenience foods, including toaster pastries, cereal bars, frozen waffles, wholesome snacks, and meat alternatives. The company’s brands include Kellogg’s, Special K, Rice Krispies, Eggo, Pop-Tarts, Nutri-Grain, Morningstar Farms, and Kashi. Kellogg icons such as Tony the Tiger and Snap! Crackle! Pop! are among the most recognized characters in advertising. Kellogg’s products are manufactured in 20 countries and marketed in more than 160 countries around the world. For more information, visit Kellogg’s web site at http://www.kelloggs.com.

This news release contains forward-looking statements related to business growth and earnings per share. These statements are based on management’s current views and assumptions regarding future business performance. Actual performance may differ due to the impact of competitive conditions, levels of marketing spending, global economic conditions, acquisitions and divestitures, and other factors.

  • Kellogg Company and Subsidiaries
  • CONSOLIDATED EARNINGS
  • (millions, except per share data)
  •                                Three months ended          Six months ended
    June 30, June 30,
    (Results are 2000 1999 Change 2000 1999 Change
    unaudited)

    Ready-to-eat cereal
    net sales $1,347.1 $1,362.4 $2,651.7 $2,692.7
    Convenience foods
    net sales 454.0 422.0 901.3 837.0
    Consolidated 1,801.1 1,784.4 0.9% 3,553.0 3,529.7 0.7%

    Cost of goods sold 849.5 838.3 1,686.4 1,674.7
    Selling and
    administrative expense 671.7 674.8 1,301.5 1,324.2
    Restructuring charges 21.3 – 21.3 36.8

    Operating profit 258.6 271.3 -4.7% 543.8 494.0 10.1%

    Interest expense 34.2 29.0 66.0 58.0
    Other income
    (expense), net 8.4 (3.5) 7.6 (6.2)

    Earnings before
    income taxes 232.8 238.8 -2.5% 485.4 429.8 12.9%
    Income taxes 81.9 84.6 172.8 156.8

    Net earnings $150.9 $154.2 -2.1% $312.6 $273.0 14.5%

    Net earnings per share
    (basic and diluted) $.37 $.38 -2.6% $.77 $.67 14.9%

    Dividends per share $.245 $.235 4.3% $.490 $.470 4.3%

    Average shares
    outstanding 405.6 405.2 405.5 405.1

    Actual shares
    outstanding at
    period end 405.6 405.2

    Operating profit for the three and six months ended June 30, 2000 includes restructuring charges of $21.3 ($14.7 after tax or $.04 per share) for a supply chain efficiency initiative in Europe. The charges were comprised principally of voluntary employee retirement and separation benefits.

    Operating profit for the six months ended June 30, 1999 includes restructuring charges of $36.8 ($25.6 after tax or $.07 per share) for workforce reduction initiatives. The charges were comprised principally of employee retirement and separation benefits in all four of the Company’s operating segments and in corporate operations.

        SELECTED OPERATING SEGMENT DATA
    (millions)

    Three months ended Six months ended
    June 30, June 30,
    (Results are unaudited) 2000 1999 2000 1999

    Net sales
    North America $1,149.3 $1,106.7 $2,261.9 $2,235.1
    Europe 373.3 411.7 756.6 800.5
    Asia-Pacific 113.0 115.1 220.3 212.7
    Latin America 160.1 151.3 307.2 279.7
    Corporate and other 5.4 (0.4) 7.0 1.7
    Consolidated $1,801.1 $1,784.4 $3,553.0 $3,529.7

    Operating profit excluding restructuring charges
    North America $209.5 $217.1 $431.9 $449.1
    Europe 67.6 58.5 120.5 99.8
    Asia-Pacific 6.4 12.6 18.6 25.4
    Latin America 41.0 36.2 76.0 66.9
    Corporate and other (44.6) (53.1) (81.9) (110.4)
    Consolidated 279.9 271.3 565.1 530.8

    Restructuring charges (21.3) – (21.3) (36.8)
    Operating profit as
    reported $258.6 $271.3 $543.8 $494.0

    Kellogg Company and Subsidiaries
    CONSOLIDATED BALANCE SHEET
    (millions, except per share data)

    June 30, December 31,
    2000 1999
    (unaudited) *

    Current assets
    Cash and cash equivalents $172.3 $150.6
    Accounts receivable, net 785.1 678.5
    Inventories:
    Raw materials and supplies 145.0 141.2
    Finished goods and materials
    in process 342.0 362.6
    Other current assets 243.3 236.3

    Total current assets 1,687.7 1,569.2
    Property, net of accumulated
    depreciation of $2,561.9
    and $2,515.8 2,593.7 2,640.9
    Other assets 743.3 598.6

    Total assets $5,024.7 $4,808.7
    Current liabilities
    Current maturities of
    long-term debt $404.5 $2.9
    Notes payable 611.7 518.6
    Accounts payable 410.3 305.3
    Income taxes 76.6 83.5
    Other current liabilities 659.5 677.5

    Total current liabilities 2,162.6 1,587.8

    Long-term debt 1,212.2 1,612.8
    Nonpension postretirement benefits 415.8 424.9
    Deferred income taxes and
    other liabilities 369.2 370.0

    Shareholders’ equity
    Common stock, $.25 par value 103.8 103.8
    Capital in excess of par value 101.9 104.5
    Retained earnings 1,431.0 1,317.2
    Treasury stock, at cost (374.1) (380.9)
    Accumulated other
    comprehensive income (397.7) (331.4)

    Total shareholders’ equity 864.9 813.2

    Total liabilities and
    shareholders’ equity $5,024.7 $4,808.7

    *Condensed from audited financial statements.

    SELECTED CONSOLIDATED CASH FLOW INFORMATION
    (millions)

    Three months ended Six months ended
    June 30, June 30,
    (Results are unaudited) 2000 1999 2000 1999

    Cash flow from operations $193.5 $149.9 $391.9 $299.6
    Depreciation and
    amortization expense $74.3 $72.6 $143.2 $140.6

    Cash used for:
    Capital expenditures $57.3 $59.7 $127.4 $115.3
    Cash dividends $99.6 $95.5 $198.8 $190.8

    Refer to Notes to Consolidated Financial Statements