kellogg kellogg Q1 2008 Earnings Release

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Transcript of kellogg kellogg Q1 2008 Earnings Release

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Forward-Looking Statements

This presentation contains, or incorporates by reference, “forward-looking statements” withprojections concerning, among other things, 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, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words “expects,” “believes,” “should,” “will,” “will deliver,” “anticipates,” “projects,” 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 other factors, including competitive conditions and their impact; the effectiveness of pricing, advertising, and promotional spending programs; the success of productivity improvements and business transitions; the success of innovation and new product introductions; the recoverability of carrying amounts of goodwill and other intangibles; the availability of and interest rates on short-term financing; changes in consumer behavior and preferences; commodity and energy prices and labor costs; 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; U.S. and foreign economic conditions including interest rates, taxes and tariffs, and currency rate translations or unavailability; legal and regulatory factors; the underlying price and volatility of the Company’s common stock and the impact of equity-based employee awards; business disruption or other losses from 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 publicly update them.

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First Quarter 2008: Continued Momentum

• Strong Revenue Growth

• Affirming Full-Year Guidance

• Returning Cash to Shareholders

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Summary of Financial ResultsMillions, except EPS

1) Internal sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions, and shipping day differences.

2) Cash Flow, defined as cash from operating activities less capital expenditures, is reconciled to the comparable GAAP measure at the end of this presentation.

2007

Net Sales 1 $ 3,258 $ 2,963 10% 5%

Operating Profit 1 $ 545 $ 499 9% 6%

Earnings Per Share $ 0.81 $ 0.80 1%

Cash Flow 2 $ 181 $ 289 -37%

Reported

First Quarter

2008 Internal

Growth

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Net Sales Tonnage Price/Mix Currency Acq./ Divest

Year-Over-Year % Change

+5.4%10.0%

1.0% 1.4%

4.4%3.2%

Q1 2008: Net Sales Growth Components

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Net Sales Brand Building Net Sales Brand Building

% Change, Net Sales and Advertising

Reinvestment for the Future: Growth in Advertising

Net SalesAdvertising

+9% +DD

Q1 2007 Q1 2008

+10%

+ MSD

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$1,264$1,364

Q1 2007 Q1 2008

$ Millions

Gross Profit and Margin*

* Gross profit as a % of net sales

- Acquisitions- Energy and fuel- Commodities

+ Operating leverage+ Productivity savings+ Price/Mix

8% Growth

Gross Margin* 42.7% 41.9%

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First Quarter 2008:Internal Operating Profit Growth by Area

North America

Europe LatinAmerica

Year-Over-Year % Change, Internal Growth (1)

Asia Pacific (2)

1. Internal operating profit growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and shipping day differences.

2. Includes Australia, Asia, and South Africa.

Total Company

6.4%

9.8%

-0.6% -6.8%

3.9%

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$181

$289

$101

Q1 2006 Q1 2007 Q1 2008

$ Millions

*Kellogg defines Cash Flow as cash from operating activities, less capital expenditure; see reconciliation to GAAP cash flow at the end of this presentation.

First Quarter 2008: Strong Cash Flow *

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2008 Outlook:Another Year of Growth

Full-Year 2008

+Mid SD

Guidance Range of $2.92 to $2.97

* Internal sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days.

Internal Net Sales*

Internal Operating Profit*

Earnings Per Share

- Significant investment in innovation - Strong advertising - Incremental commodity, energy, fuel, benefits expense of approximately 80 cents

- Continued up-front cost investment

+Mid SD- Greater than our long-term target

- Higher tax rate of approximately 31%.

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6%5%

Kellogg North America Kellogg International

First Quarter 2008 Broad-Based Sales Growth

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First Quarter 2008:Broad-Based Growth in North America

4%5%

4%

10%

Total North America Retail Cereal Retail Snacks Frozen andSpecialty Channels

1) Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days.

2) Includes U.S. and Canada retail cereal.3) Includes biscuits, wholesome snacks, Pop-Tarts, and fruit snacks.4) Includes frozen foods, Food Away From Home, and custom manufacturing.

Year-Over-Year %, Internal Net Sales Growth (1)

(2) (3)

(4)

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0%

3%4%

8%

4%

Q1 Q2 Q3 Q4 Q1

North America Retail Cereal:Internal Net Sales Growth*Year-Over-Year % Change

* Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days.

20082007

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North America Retail Snacks:Internal Net Sales Growth*Year-Over-Year % Change

* Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days.

5%

9%

4%

2%

11%

Q1 Q2 Q3 Q4 Q120082007

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First Quarter 2008:North America Retail SnacksYear-Over-Year Change, Net Sales

Toaster Pastries

Crackers

Cookies

Wholesome Snacks

Portfolio +4%

Sales

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5%6%

10%

8%6%

Q1 Q2 Q3 Q4 Q1

North America Frozen & Specialty Channels(1):Internal Net Sales Growth (2)

Year-Over-Year % Change

1) Includes Frozen Foods, Food Away From Home, and custom manufacturing.2) Internal sales growth excludes the impact of foreign currency translation and if applicable,

acquisitions, dispositions and differences in the number of shipping days.

2007 2008

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* Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days.

Kellogg International:Internal Net Sales Growth*

5%4%

6%6%5%

Q1 Q2 Q3 Q4 Q12007

Year-Over-Year % Change

2008

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5%5%

7%

6%

First Quarter 2008: International GrowthYear-Over-Year % Change, Internal Sales Growth (1)

1) Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days.

2) Includes Australia, Asia, and South Africa.

(2)Europe LatinAmerica

Asia Pacific

Total International

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First Quarter 2008: Continued Momentum

• Strong Q1 Execution

• Strong Innovation & Investment

• Sustainable and Dependable

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Appendix 1Reconciliation of Kellogg-Defined* Cash Flow to GAAP Cash Flow

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

March 29, March 31,(unaudited) 2008 2007

Operating activitiesNet earnings $315 $321Adjustments to reconcile net earnings to operating cash flows: Depreciation and amortization 94 87 Deferred income taxes (11) (33) Other 70 28Postretirement benefit plan contributions (41) (30)Changes in operating assets and liabilities (179) (18)

Net cash provided by operating activities 248 355

Less:Additions to properties (67) (66)

Cash flow $181 $289

Year-to-date period ended