Kellogg Company Reports First Quarter 2015 Results, Reaffirms Full-Year Currency-Neutral Comparable Guidance

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 $0.06per share from currency translation; comparable earnings per share excluding the impact of currencies would have been$1.04 per share.

"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 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.

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.

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 athttp://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 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 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.