updated 11/2/2010 8:16:27 AM ET 2010-11-02T12:16:27

BATTLE CREEK, Mich., Nov. 2, 2010 (GLOBE NEWSWIRE) -- Kellogg Company (NYSE:K) today reported soft third quarter 2010 earnings per share, internal net sales and internal operating profit, consistent with the Company's October 21, 2010 announcement. Third quarter softness was due to weaker performance in some of the Company's core cereal markets, continued competitive intensity, and the impact of the cereal recall.

Third quarter reported net earnings were $338 million, a 6 percent decrease over the same quarter a year ago. Third quarter reported earnings per diluted share declined 4 percent to $0.90, and 2 percent on a currency-neutral basis. 

Reported net sales declined 4 percent to $3.2 billion in the third quarter. Internal net sales, excluding the effect of foreign currency translation, decreased 2 percent year-over-year. Total reported operating profit in the quarter decreased 5 percent to $541 million driven primarily by lower net sales and increased advertising investment.  Internal operating profit decreased 3 percent. Reported gross margin contracted by 50 basis points to 43.4 percent in the quarter because of higher than expected cost pressures and lower volume levels.

"We are disappointed with our third quarter performance which was due to softness in our businesses as well as a tough operating and deflationary environment driven by intense competition," said David Mackay, Kellogg Company's chief executive officer. "2010 has been a challenging year, and as a result, two weeks ago, we lowered our full-year guidance to reflect the operating challenges."

North America

Kellogg North America posted a third quarter net sales decline of 3 percent on both a reported and internal basis. A 6 percent decrease in North America Retail Cereal internal net sales drove the majority of this decline, reflecting the weaker performance in the cereal category driven by the continuation of heavy promotional pricing in the category.  Retail Snacks posted roughly flat internal net sales as strength in the wholesome snacks business helped mitigate the impact of a decline in cookie sales. The North America Frozen and Specialty Channels businesses posted an internal net sales decline of 5 percent due to the slower than projected rebuild of the Eggo waffle business.

North America operating profit decreased 3 percent on both a reported and internal basis. Lower sales and volume as well as higher manufacturing costs and advertising investments were the primary contributors to the decline in operating performance. 

International

Kellogg International posted a 6 percent decline in third quarter reported net sales. On an internal basis, excluding the effects of currency translation, net sales for Kellogg International were down 2 percent. Weaker European cereal and Russian snack performance drove this decline and resulted in a 5 percent decrease in third quarter internal net sales in Europe. Latin America internal net sales rose 5 percent, and Asia Pacific internal net sales grew 2 percent. 

Kellogg International operating profit declined 11 percent on a reported basis and 5 percent on an internal basis. While Europe's operating profit grew modestly, operating profit in Latin America and Asia Pacific were both lower year-over-year.

Interest and Tax

In the third quarter 2010, Kellogg's interest expense totaled $62 million, an improvement over the same quarter in 2009 as a result of more favorable interest rates. The third quarter effective tax rate was 29.8 percent. 

Cash flow

Cash flow, defined as cash from operating activities less capital expenditures, was $827 million year-to-date. Year-to-date, Kellogg repurchased $907 million of shares under its $2.5 billion three-year share repurchase authorization.    

Kellogg 2010 Guidance

On October 21, 2010, the Kellogg Company lowered full-year 2010 guidance.  Internal net sales are expected to be down approximately one percent. Internal operating profit is anticipated to be approximately flat, which includes the benefit from lower 2010 compensation costs.  Full-year currency-neutral earnings per share is expected to grow 4 to 5 percent. Given these current business results, cash flow is expected to be in the $950 million to $1 billion range. However, in the fourth quarter, we expect to make a voluntary contribution of approximately $500 million net of tax to the Company's pension and post-retirement benefit plans. Reflecting this contribution, cash flow for full-year 2010 is expected to be in the $450 million to $500 million range.    

Kellogg Provides Outlook for 2011

Given the challenges of 2010, Kellogg is approaching 2011 as a year of strengthening the business. For 2011, the Company expects internal net sales growth to be low single-digits, in-line with long-term growth targets. Internal operating profit is expected to be flat to down 2 percent reflecting the need to reset incentive compensation levels.  Earnings per share on a currency-neutral basis are expected to grow at a low single-digit rate. 

CEO Mackay concluded, "2010 has been extremely difficult and our softer performance is reflected in our current 2010 outlook. We are addressing the current business challenges. As we enter 2011, we feel positive about our strong commercial plans and higher levels of innovation, yet we are also pragmatic and realistic in our 2011 forecasts. We are confident that we are doing the right things for our business and are positioning ourselves to deliver on our long-term growth targets."

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on November 2, 2010 at 9:30 a.m. Eastern Time. The conference call and accompanying presentation slides will be broadcast live over the Internet at http://investor.kelloggs.com . Analysts and institutional investors may participate in the Q&A session by dialing 888-465-4043 in the U.S., and 201-604-5146 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is available at http://investor.kelloggs.com .

About Kellogg Company

With 2009 sales of nearly $13 billion, Kellogg Company is the world's leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles, and veggie foods. The Company's brands include Kellogg's®, Keebler®, Pop-Tarts®, Eggo®, Cheez-It®, Nutri-Grain®, Rice Krispies®, BearNaked®, Morningstar Farms®, Famous Amos®, Special K®, All-Bran®, Frosted Mini-Wheats®, Club® and Kashi®. Kellogg products are manufactured in 18 countries and marketed in more than 180 countries around the world. For more information, visit the Kellogg Company web site at http://www.kelloggcompany.com .

The Kellogg Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3194

Forward-Looking Statements Disclosure

This news release 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," "estimates," 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 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 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 publicly update them.

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