Kellogg Company yesterday announced third quarter 2000 results in line with consensus analyst estimates and provided an update on its growth strategy.
Third Quarter EPS up 7.1 Percent
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For the third quarter ended September 30, 2000, earnings per share were $.45, up 7.1 percent from last year’s $.42. Net earnings were $181.9 million, up 6.5 percent from last year’s $170.8 million. Results exclude 1999 restructuring and disposition-related charges. Third quarter net sales were $1.85 billion, down 1.2 percent from last year’s $1.87 billion, and third quarter volume was off 1.4 percent. However, excluding the effects of foreign exchange, acquisitions, and divestitures, sales were up 1.1 percent and volume up 1.3 percent. “Despite several unusual challenges in the third quarter, we were able to post our sixth consecutive quarterly EPS increase,” said Carlos M. Gutierrez, chairman and chief executive officer of Kellogg Company.
Earnings per share and net earnings were negatively affected by foreign exchange translations, rising energy prices, higher interest rates, and an inventory write-off in Southeast Asia, offset partially by the benefit of U.S. tax credits. “We also faced a substantial increase in promotional activity by cereal competitors in the United States,” said Gutierrez. “Nonetheless, we increased our U.S. cereal market share through improved execution and more efficient marketing spending.”
For the first nine months of 2000, excluding charges, Kellogg’s earnings per share were $1.26, up 8.6 percent from last year’s $1.16, and net earnings were $509.2 million, up 8.5 percent from last year’s $469.4 million. Nine- months net sales were even with last year at $5.40 billion and volume was off by 1.2 percent. Excluding the effects of foreign exchange, acquisitions, and divestitures, nine-months sales were up 2.0 percent and volume up 1.8 percent.
Including all charges, third quarter 1999 earnings per share were negative $.08 on net earnings of negative $35.6 million, nine-months 1999 earnings per share were $.59 on net earnings of $237.4 million, and nine-months 2000 earnings per share were $1.22 on net earnings of $494.5 million.
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By GlobalDataWith higher energy prices and interest rates, heightened competitive activity, and unfavorable foreign exchange translations continuing in the fourth quarter, the company may be challenged to match analysts’ estimates for fourth quarter earnings per share.
Next Phase in Kellogg Growth Strategy
Gutierrez said that while Kellogg Company has significantly improved its ability to compete over the past two years, it is now time to seek growth more aggressively.
“We have been working hard to revitalize Kellogg, and among other steps, we’ve strengthened our management team, expanded our convenience foods business and improved customer relationships — returning Kellogg to steady earnings growth,” he said. Gutierrez continued, “We are now entering the next phase in the renewal of Kellogg Company. We need to simplify our current Kellogg business, prioritize its resources, and refuel it with a return to previous levels of marketing investment.”
Gutierrez said Kellogg’s need to prioritize will result in focusing more resources on the United States and its other core markets — the United Kingdom/Republic of Ireland, Mexico, Canada, and Australia/New Zealand. “In the United States, our largest market, we will invest strongly in building our cereal brands, continue to expand our convenience foods business, and enhance our growth through acquisitions,” he said. “This prioritization also includes setting more realistic short-term targets and improving the profitability of non-core markets.”
Kellogg’s initiatives should accelerate sales growth in 2001, but could limit 2001 EPS growth to a mid-single-digit rate.
Company Information
With annual sales of nearly $7 billion, 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 www.kelloggs.com
Forward-Looking Statements Disclosure
This news release contains forward-looking statements related to acquisitions, business growth, and earnings per share. These statements are based on management’s current views and assumptions regarding future business performance. Actual performance may vary due to differences in acquisition outcomes; competitive conditions; levels of marketing spending; economic factors such as energy prices, interest rates, and foreign currency translations; and other factors.
Kellogg Company and Subsidiaries
CONSOLIDATED EARNINGS
(millions, except per share data)
Three months ended Nine months ended
September 30, September 30,
(Results are unaudited) 2000 1999 2000 1999
Ready-to-eat cereal net sales $1,364.7 $1,393.1 $4,016.4 $4,085.8
Convenience foods net sales 481.0 475.3 1,382.3 1,312.3
Consolidated 1,845.7 1,868.4 5,398.7 5,398.1
Cost of goods sold 875.7 883.7 2,562.1 2,558.4
Selling and
administrative expense 661.9 687.8 1,963.4 2,012.0
Restructuring charges - 149.0 21.3 185.8
Operating profit 308.1 147.9 851.9 641.9
Interest expense 36.4 29.5 102.4 87.5
Disposition-related charges - (168.5) - (168.5)
Other income (expense), net 0.2 2.2 7.8 (4.0)
Earnings before income taxes 271.9 (47.9) 757.3 381.9
Income taxes 90.0 (12.3) 262.8 144.5
Net earnings $181.9 ($35.6) $494.5 $237.4
Net earnings per share
(basic and diluted) $.45 ($0.08) $1.22 $.59
Dividends per share $.253 $.245 $.743 $.715
Average shares outstanding 405.6 405.2 405.6 405.1
Actual shares outstanding
at period end 405.6 405.3
Operating profit for the nine months ended September 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 three months ended September 30, 1999, includes restructuring charges of $149.0 ($94.9 after tax or $.23 per share). Operating profit for the nine months ended September 30, 1999, includes restructuring charges of $185.8 ($120.5 after tax or $.30 per share). The year-to-date charges consist of $128.2 from the closing of the South Operations portion of the Company’s Battle Creek, Michigan, cereal plant, $20.8 primarily from write-off of manufacturing assets in various locations, and $36.8 from workforce reduction initiatives around the world.
Disposition-related charges for the three and nine months ended September 30, 1999, include a $178.9 loss from the sale of Lender’s Bagels business and a $10.4 gain from the sale of the United Kingdom corn milling business. Total restructuring and disposition-related charges for the three months ended September 30, 1999, are $317.5 ($206.4 after tax or $.50 per share). Total restructuring and disposition-related charges for the nine months ended September 30, 1999, are $354.3 ($232.0 after-tax or $.57 per share).
SELECTED OPERATING SEGMENT DATA
(millions)
Three months ended Nine months ended
September 30, September 30,
(Results are unaudited) 2000 1999 2000 1999
Net sales
United States $1,102.8 $1,102.5 $3,184.1 $3,166.3
Europe and Canada 463.8 499.6 1,401.0 1,471.4
Asia-Pacific 107.8 115.5 328.1 328.2
Latin America 166.2 150.9 473.4 430.6
Corporate and other 5.1 (0.1) 12.1 1.6
Consolidated $1,845.7 $1,868.4 $5,398.7 $5,398.1
Operating profit excluding restructuring charges
United States $207.1 $228.5 $605.1 $645.8
Europe and Canada 91.0 72.1 245.4 203.7
Asia-Pacific (2.3) 12.4 16.3 37.8
Latin America 45.5 40.3 121.5 107.2
Corporate and other (33.2) (56.4) (115.1) (166.8)
Consolidated 308.1 296.9 873.2 827.7
Restructuring charges - (149.0) (21.3) (185.8)
Operating profit as
reported $308.1 $147.9 $851.9 $641.9
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
September 30, December 31,
2000 1999
(unaudited) *
Current assets
Cash and cash equivalents $216.3 $150.6
Accounts receivable, net 822.3 678.5
Inventories:
Raw materials and supplies 146.5 141.2
Finished goods and materials
in process 320.6 362.6
Other current assets 212.6 236.3
Total current assets 1,718.3 1,569.2
Property, net of accumulated
depreciation of $2,583.8
and $2,515.8 2,535.6 2,640.9
Other assets 745.5 598.6
Total assets $4,999.4 $4,808.7
Current liabilities
Current maturities of
long-term debt $904.8 $2.9
Notes payable 579.9 518.6
Accounts payable 394.3 305.3
Income taxes 117.5 83.5
Other current liabilities 599.6 677.5
Total current liabilities 2,596.1 1,587.8
Long-term debt 709.1 1,612.8
Nonpension postretirement benefits 413.1 424.9
Deferred income taxes and
other liabilities 372.5 370.0
Shareholders' equity
Common stock, $.25 par value 103.8 103.8
Capital in excess of par value 102.0 104.5
Retained earnings 1,510.6 1,317.2
Treasury stock, at cost (374.0) (380.9)
Accumulated other
comprehensive income (433.8) (331.4)
Total shareholders' equity 908.6 813.2
Total liabilities and
shareholders' equity $4,999.4 $4,808.7
*Condensed from audited financial statements.
SELECTED CONSOLIDATED CASH FLOW INFORMATION
(millions)
Three months ended Nine months ended
September 30, September 30,
(Results are unaudited) 2000 1999 2000 1999
Cash flow from operations $238.2 $249.8 $630.1 $549.4
Depreciation and
amortization expense $74.1 $74.6 $217.3 $215.2
Cash used for:
Capital expenditures $45.1 $62.4 $172.5 $177.7
Cash dividends $102.4 $99.5 $301.2 $290.3
Refer to Notes to Consolidated Financial Statements
