Kellogg Co. Reports 5 Percent Net Sales Gain In Third Quarter

Kellogg Co. announced that third quarter 2011 reported net sales increased 5 percent year-over-year to $3.3 billion. Internal net sales, which exclude the effects of foreign currency translation, rose 3 percent over the same period. Third quarter 2011 operating profit was $464 million, a decline of 14 percent on a reported basis and 16 percent on an internal basis. The decline is partially the result of the acceleration of costs related to supply-chain initiatives which increased cost of goods sold. Approximately 8 points of the decline is due to increased supply-chain costs and 12 points is due to the reinstatement of incentive compensation costs, which was discussed previously. Without these factors, operating profit would have increased from the level posted in the third quarter of 2010.

Third quarter reported net earnings were $290 million, or $0.80 per diluted share, an 11 percent decline from third quarter 2010 reported earnings of $0.90 per diluted share. On a currency-neutral basis, third quarter 2011 earnings per share declined 13 percent.

"We are continuing to rebuild our momentum as a company. The third quarter offered some compelling signs of improvement, particularly top-line growth and in-market performance. Rebuilding momentum takes time, especially in challenging market environments. We increased the levels of investment in our supply chain in the quarter, a process we will continue. This multi-year program will improve the infrastructure and drive reliability and capability," said John Bryant, Kellogg Co.'s president and chief executive officer in a prepared statement.

During the third quarter 2011, Kellogg North America net sales were $2.2 billion, a 4 percent increase on both a reported and internal basis. On an internal basis, North America Retail Cereal net sales were flat for the quarter due to fluctuations in trade inventory. However, underlying consumption in measured channels grew by approximately 5 percent. North America Retail Snacks delivered internal net sales growth of 3 percent driven by growth in crackers, cookies, and wholesome snacks. Internal net sales for the North America frozen and specialty channels grew a strong 12 percent driven by growth in the frozen foods business. North America operating profit decreased 12 percent on a reported basis and 13 percent on an internal basis driven by the supply-chain investment, the consequent higher cost of goods sold, and the reinstatement of incentive compensation.

Kellogg International posted third quarter reported net sales of $1.1 billion, an increase of 7 percent year-over-year on a reported basis. For Kellogg International, internal net sales growth, which excludes the effects of currency translation, increased 2 percent. Internal net sales in Europe declined 2 percent driven by a continuing difficult operating environment in the United Kingdom. Continental Europe continued to improve with growth posted across France, Italy, and Spain. Latin America internal net sales rose 9 percent. Latin America is building momentum across the region driven by strong innovation and brand-building investment. Asia Pacific's internal net sales grew 2 percent, but performance was adversely impacted by a customer trading issue in Australia.

Kellogg International operating profit declined 9 percent on a reported basis and 13 percent on an internal basis. Latin America's internal operating profit grew 19 percent for the quarter driven by strong sales growth. Europe's internal operating profit was down 21 percent due to the difficult trading environment in the United Kingdom and higher input costs. Asia Pacific's internal operating profit decreased by 14 percent in the third quarter driven by an issue with a customer in Australia.