kellogg 	 Q3 2007 Earnings Release
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kellogg Q3 2007 Earnings Release Presentation Transcript

  • 1. Third Quarter 2007 Earnings Review October 29, 2007 1
  • 2. Forward-Looking Statements This presentation contains, or incorporates by reference, “forward-looking statements” with projections 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. 2
  • 3. Third Quarter 2007 Highlights • Solid Revenue Growth • Increased Levels of Investment • 9% Higher Earnings Per Share • Raising 2007 Earnings Guidance • 2008 Outlook 3
  • 4. Summary of Financial Results Millions, except EPS Third Quarter Growth 2007 2006 Reported Internal Net Sales (1) $ 3,004 $ 2,823 6% 4% Operating Profit (1) $ 492 $ 487 1% -2% Earnings Per Share $ 0.76 $ 0.70 9% (2) Cash Flow $ 961 $ 850 13% 1) 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. 2) Year-to-date cash flow, defined as cash from operating activities less capital expenditures, is reconciled to the comparable GAAP measure at the end of this presentation. 4
  • 5. Third Quarter 2007: Net Sales Growth Components Year-Over-Year % Change 6.4% +3.8% Internal* 3.1% 2.6% 0.7% 0.0% Net Sales Tonnage Price/Mix Currency Acq./ Divest YTD 7.9% 2.0% 3.6% 2.3% 0.0 * Internal net sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions, and difference in the number of shipping days. 5
  • 6. Reinvestment for the Future: Growth in Advertising % Change, Net Sales and Advertising Net Sales Advertising + DD + DD +8% +6% Net Sales Brand Building Net Sales YTD 2007 Building Brand Third Quarter 2007 6
  • 7. Gross Profit and Margin* + Operating leverage - Energy and fuel + Productivity savings - Commodities + Price/Mix $ Millions $1,342 $1,274 5% $1,186 Growth Q3 2005 Q3 2006 Q3 2007 YTD Margin* 45.2% 44.5% 44.3% * % of net sales 7
  • 8. Third Quarter 2007: Internal Operating Profit Growth by Area Year-Over-Year % Change, Internal Growth (1) 1% (2)% (4)% (2)% (26)% Total North Latin Asia Pacific(2) Company America Europe America YTD 3% 3% 11% (7)% (15)% 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. 8
  • 9. 2007: Sixth Consecutive Year of Sustainable Growth 2007 Year-To-Date Grow Gross Profit • Decreased (20) basis pts • Dollars up about $280 million Increase Brand Building High Single Digit Increases Grow Internal Net Sales Sustainable 2007: +5.6% Growth Drive Innovation (V2V) Increase Price / Mix 2007: +3.6% 9
  • 10. Year-To-Date 2007: Higher Cash Flow* $ Millions $961 13% $850 Growth YTD 2006 YTD 2007 * Kellogg defines Cash Flow as cash from operating activities, less capital expenditure; 10 see reconciliation to GAAP cash flow at the end of this presentation.
  • 11. 2007 Outlook: Greater Confidence In Another Strong Year Full Year 2007 Internal Net Sales* +Mid SD Growth Greater than our long-term target of low single-digit growth 19¢ of Internal Operating Profit* +Low SD Up-front Includes significant investment in innovation, Costs increased advertising, additional investment in up-front costs as well as higher commodity inflation Earnings Per Share Raising Guidance to $2.72 to $2.75 Increased up-front costs offset by lower tax rate * 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. 11
  • 12. 2008 Outlook: Another Year of Long-Term, Sustainable Growth Full Year 2008 Internal Net Sales* +Mid SD Greater than our long-term target Internal Operating Profit* +Mid SD Significant investment in innovation Increased advertising Additional inflation headwinds Continued up-front cost investment Earnings Per Share Guidance Range of $2.92 to $2.97 Higher tax rate of 31% * 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. 12
  • 13. Third Quarter 2007:North America Growth Year-Over-Year %, Internal Net Sales Growth (1) 6% 5% 3% 0% (2) Retail Snacks (3) Total North Retail Cereal Frozen and Specialty Channels(4) America YTD 6% 2% 8% 6% 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. 13 4) Includes frozen foods, Food Away From Home, and custom manufacturing.
  • 14. North America Retail Cereal: Internal Net Sales Growth* Year-Over-Year % Change 6% 4% 4% 3% 3% 0% -2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 * 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. 14
  • 15. North America Retail Snacks: Internal Net Sales Growth* Year-Over-Year % Change 12% 12% 11% 11% 11% 9% 5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 *Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days. 15
  • 16. Third Quarter 2007: North America Retail Snacks Year-Over-Year Change, Net Sales Sales Toaster Pastries Crackers Cookies Wholesome Snacks Portfolio +5% 16
  • 17. North America Frozen & Specialty Channels(1): Internal Net Sales Growth(2) Year-Over-Year % Change 9% 8% 8% 8% 6% 5% 5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2007 2006 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. 17
  • 18. Kellogg International: Internal Net Sales Growth* Year-Over-Year % Change 6% 6% 5% 5% 5% 5% 5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 * Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and differences in the number of shipping days. 18
  • 19. Third Quarter International 2007: Internal Sales Growth Year-Over-Year % Change, Internal Sales Growth (1) 12% 5% 3% -1% Total Asia (2) Latin Europe International Pacific America YTD 5% 6% 10% (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. 19
  • 20. Outlook for 2008 • Commodity inflation and volatility • Drive initiatives to help offset inflation • Strong innovation and advertising support • Investment in geographic expansion • Continued efficiency gains Confidence and visibility for another year of sustainable, dependable growth 20
  • 21. Appendix 1 Reconciliation of Kellogg-Defined Cash Flow to GAAP Cash Flow Year-to-date period ended September 29, September 30, 2007 2006 (unaudited) Operating activities Net earnings $822 $927 Adjustments to reconcile net earnings to operating cash flows: Depreciation and amortization 258 275 Deferred income taxes 2 (114) Other 140 138 Postretirement benefit plan contributions (38) (42) Changes in operating assets and liabilities (72) 69 1,112 Net cash provided by operating activities 1,253 Less: Additions to properties (262) (292) $850 Cash flow $961 We use this non-GAAP measure of cash flow to focus management and investors on the amount of cash available for debt reduction, dividend distributions, acquisition opportunities, and share repurchases. 21