Kellogg Company Reports First Quarter 2014 Results, Reaffirms Full-Year Guidance

01 May, 2014, 08:00 ET from Kellogg Company

BATTLE CREEK, Mich., May 1, 2014 /PRNewswire/ -- Kellogg Company (NYSE: K) today announced first-quarter results for earnings per share that were greater than the company's expectations; results for operating profit were in-line with expectations.  First quarter 2014 reported net sales decreased by 3.1 percent to $3.7 billion.  Internal net sales,* which exclude the effects of foreign currency translation, acquisitions, dispositions, and integration costs, decreased by 2.4 percent over the same period.  First quarter 2014 operating profit was $614 million, a reported increase of 22.1 percent; this increase was driven primarily by the impact that asset returns and changes in interest rates had on pension plans.  Underlying internal operating profit,* which excludes the effects of foreign currency translation, acquisitions, dispositions, mark-to-market accounting, integration costs, and costs associated with Project K, decreased by 5.5 percent.  As expected, the decline in underlying internal operating profit was largely the result of lower sales and the timing of costs of goods sold in the period.

Reported earnings for the first quarter 2014 were $406 million, or $1.12 per diluted share, an increase of 32 percent from the $0.85 per diluted share reported in the first quarter of last year.  This quarter's reported earnings per share included an impact from mark-to-market of $0.22 per share, partially offset by $0.10 per share of costs associated with Project K and approximately $0.01 per share of integration costs related to the acquisition of Pringles.  Excluding these items, comparable first quarter 2014 earnings* were $1.01 per share, greater than the company's expectations as the result of the impact of a $0.03 per share benefit in Other Income and Expense.

"Our results for operating profit and earnings in the first quarter were broadly in-line with the expectations we highlighted on the last earnings call," said John Bryant, Kellogg Company's president and chief executive officer.  "In addition, we've made great progress with Project K and we've developed strong investment plans for the remainder of the year.  As a result, we've reaffirmed our guidance for the full year and expect top-line performance to improve over time."

* Internal sales growth, underlying internal operating profit growth, comparable earnings, underlying effective tax rate and cash flow are all non-GAAP financial measures. See the tables herein for important information regarding these measures and a full reconciliation to the most comparable GAAP measure.

North America

Net sales posted by Kellogg North America were $2.5 billion in the first quarter, a reported decrease of 2.9 percent; internal net sales decreased by 2.4 percent.  The U.S. Morning Foods segment posted an internal net sales decline of 5.5 percent.  Internal net sales in the U.S. Snacks segment increased by 0.3 percent.  The U.S. Specialty Channels segment posted a 1.7 percent internal net sales decline in the quarter and the North America Other segment, which is comprised of the U.S. Frozen Foods and Canadian businesses, posted a 2.1 percent decrease in internal net sales.  Reported operating profit in North America decreased by 9.4 percent; internal operating profit declined by 6.1 percent, largely as the result of lower sales and the timing of costs of goods sold.

International

Reported net sales increased by 2.3 percent in Europe in the quarter; internal net sales decreased by 1.7 percent.  In Latin America, reported net sales decreased by 9.8 percent and internal net sales decreased by 5.3 percent, reflecting the impact of an increased food tax in Mexico.  Reported net sales in Asia Pacific decreased by 10.7 percent and internal net sales decreased by 1.4 percent.

Interest and Tax

Kellogg's interest expense was $52 million in the first quarter.  The underlying tax rate* in the first quarter of 2014 was 28.8 percent.

Cash flow

Cash flow,* a non-GAAP measure defined as cash from operating activities less capital expenditures, was $171 million for the quarter, and was in-line with expectations.  It is still anticipated that cash flow for the year will be in a range between $1.0 and $1.1 billion.

Kellogg repurchased $321 million of shares during the first quarter, far exceeding option proceeds of $32 million.

Kellogg Reaffirms Full-Year 2014 Guidance

The company reaffirmed its guidance for full-year internal net sales growth of approximately one percent.  Underlying internal operating profit growth is still expected to be in a range between zero and two percent.  Currency-neutral comparable earnings per share growth is still expected to be between one and three percent.  Integration costs associated with the acquisition of the Pringles business are still expected to be in a range between $0.07 and $0.09 per share.  Costs associated with Project K are still expected to be in a range between $0.60 and $0.65 per share.  As a result, earnings excluding the impact of mark-to-market accounting, integration costs, Project K and other items impacting comparability are still anticipated to be between $3.89 and $3.97 per share.  This year's 53rd week is still expected to add approximately $0.08 per share to earnings.  As a result, the company continues to expect an earnings range including the impact of the 53rd week of between $3.97 and $4.05 per share, which the company estimates is in line with the Bloomberg consensus estimate.

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on Thursday, May 1, 2014 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 (877) 270-2148 in the U.S., and (412) 902-6510 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

At Kellogg Company (NYSE: K), we are driven to enrich and delight the world through foods and brands that matter. With 2013 sales of approximately $14.8 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®, Frosted Flakes®, Pop-Tarts®, 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 the Pringles® business, 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 exceed 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 the Pringles acquisition 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.

[Kellogg Company Financial News]

 

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)

Quarter ended

March 29,

March 30,

(Results are unaudited)

2014

2013

Net sales

$3,742

$3,861

Cost of goods sold

2,238

$2,468

Selling, general and administrative expense

890

890

Operating profit

614

503

Interest expense

52

60

Other income (expense), net

10

(7)

Income before income taxes 

572

436

Income taxes

165

124

Earnings (loss) from joint ventures

(1)

(1)

Net income

$406

$311

Net income (loss) attributable to noncontrolling interests 

-

-

Net income attributable to Kellogg Company 

$406

$311

Per share amounts:

Basic

$1.13

$.86

Diluted

$1.12

$.85

Dividends per share

$.4600

$.4400

Average shares outstanding:

Basic

360

363

Diluted

362

366

Actual shares outstanding at period end

358

366

 

 

Kellogg Company and Subsidiaries

SELECTED OPERATING SEGMENT DATA

(millions)

Quarter ended

March 29,

March 30,

(Results are unaudited)

2014

2013

Net sales

U.S. Morning Foods

$861

$911

U.S. Snacks

903

901

U.S. Specialty

372

379

North America Other

381

403

Europe 

708

692

Latin America 

278

308

Asia Pacific

239

267

Consolidated

$3,742

$3,861

Operating profit 

U.S. Morning Foods

$128

$163

U.S. Snacks

95

106

U.S. Specialty

87

78

North America Other

72

75

Europe 

67

71

Latin America 

48

48

Asia Pacific

14

21

Total Reportable Segments

511

562

Corporate 

103

(59)

Consolidated

$614

$503

 

 

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)

Quarter ended

March 29,

March 30,

(unaudited)

2014

2013

Operating activities

Net income

$406

$311

Adjustments to reconcile net income to 

operating cash flows:

  Depreciation and amortization

116

113

  Postretirement benefit plan expense (benefit)

(22)

(4)

  Deferred income taxes

45

11

  Other 

6

5

Postretirement benefit plan contributions

(28)

(31)

Changes in operating assets and liabilities, net of acquisitions

(255)

(67)

Net cash provided by (used in) operating activities

268

338

Investing activities

Additions to properties

(97)

(102)

Other

(2)

-

Net cash provided by (used in) investing activities

(99)

(102)

Financing activities

Net issuances (reductions) of notes payable

986

(226)

Issuances of long-term debt

-

645

Reductions of long-term debt

(682)

(749)

Net issuances of common stock

37

265

Common stock repurchases 

(321)

(44)

Cash dividends

(166)

(160)

Other

(1)

9

Net cash provided by (used in) financing activities

(147)

(260)

Effect of exchange rate changes on cash and cash equivalents

(11)

(5)

Increase (decrease) in cash and cash equivalents

11

(29)

Cash and cash equivalents at beginning of period

273

281

Cash and cash equivalents at end of period

$284

$252

Supplemental financial data:

Net cash provided by (used in) operating activities

$268

$338

Additions to properties

(97)

(102)

Cash Flow (operating cash flow less property additions) (a)

$171

$236

(a) 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 repurchase.

 

 

Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)

 March 29,

   December 28,

2014

2013

   (unaudited)

*

Current assets

Cash and cash equivalents

$284

$273

Accounts receivable, net

1,605

1,424

Inventories:

    Raw materials and supplies

348

319

    Finished goods and materials in process

929

929

Deferred income taxes

155

195

Other prepaid assets

183

127

Total current assets

3,504

3,267

Property, net of accumulated depreciation

  of $5,589 and $5,501

3,851

3,856

Goodwill

5,049

5,051

Other intangibles, net of accumulated amortization

  of $64 and $62

2,369

2,367

Pension

515

419

Other assets

440

514

Total assets

$15,728

$15,474

Current liabilities

Current maturities of long-term debt

$527

$289

Notes payable

1,725

739

Accounts payable

1,383

1,432

Accrued advertising and promotion

494

476

Accrued income taxes

107

69

Accrued salaries and wages

242

327

Other current liabilities

595

503

Total current liabilities

5,073

3,835

Long-term debt

5,413

6,330

Deferred income taxes 

915

928

Pension liability

270

277

Nonpension postretirement benefits

66

68

Other liabilities

419

429

Commitments and contingencies

Equity

Common stock, $.25 par value

105

105

Capital in excess of par value

638

626

Retained earnings

6,985

6,749

Treasury stock, at cost

(3,278)

(2,999)

Accumulated other comprehensive income (loss) 

(939)

(936)

Total Kellogg Company equity

3,511

3,545

Noncontrolling interests 

61

62

Total equity

3,572

3,607

Total liabilities and equity

$15,728

$15,474

* Condensed from audited financial statements.

 

 

Kellogg Company and Subsidiaries

Analysis of net sales and operating profit performance

First Quarter of 2014 versus 2013 

U.S.

U.S.

U.S.

N. America

North

Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

Other

America

Europe

America

Pacific

orate

dated

2014 net sales

$861

$903

$372

$381

$2,517

$708

$278

$239

$0

$3,742

2013 net sales

$911

$901

$379

$403

$2,594

$692

$308

$267

$0

$3,861

% change - 2014 vs. 2013:

As Reported

-5.5%

0.3%

-1.7%

-5.6%

-2.9%

2.3%

-9.8%

-10.7%

0.0%

-3.1%

Acquisitions/Divestitures

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-0.3%

0.0%

0.0%

Integration impact (a)

0.0%

0.0%

0.0%

0.2%

0.1%

0.0%

0.0%

0.3%

0.0%

0.0%

Foreign currency impact

0.0%

0.0%

0.0%

-3.7%

-0.6%

4.0%

-4.5%

-9.3%

0.0%

-0.7%

Subtotal - internal business (b)

-5.5%

0.3%

-1.7%

-2.1%

-2.4%

-1.7%

-5.3%

-1.4%

0.0%

-2.4%

      Volume (tonnage) (c)

-2.9%

-3.0%

-11.4%

0.0%

0.0%

-3.5%

      Pricing/mix

0.5%

1.3%

6.1%

-1.4%

0.0%

1.1%

U.S.

U.S.

U.S.

N. America

North

Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

Other

America

Europe

America

Pacific

orate

dated

2014 operating profit 

$128

$95

$87

$72

$382

$67

$48

$14

$103

$614

2013 operating profit

$163

$106

$78

$75

$422

$71

$48

$21

($59)

$503

% change - 2014 vs. 2013:

As Reported

-21.1%

-10.5%

11.6%

-4.1%

-9.4%

-6.1%

1.0%

-34.7%

274.6%

22.1%

Acquisitions/Divestitures

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.6%

0.0%

0.0%

Integration impact (a)

0.0%

3.0%

0.0%

1.1%

0.9%

3.9%

0.3%

8.7%

54.3%

2.0%

Foreign currency impact

0.1%

0.0%

0.0%

-4.5%

-0.7%

7.1%

1.1%

-8.8%

41.9%

0.2%

Mark-to-market (d)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

431.2%

32.7%

Restructuring and cost reduction activities (e)

-5.3%

-3.5%

-0.4%

-2.9%

-3.5%

-17.0%

-9.1%

-7.9%

-183.5%

-7.3%

Underlying internal (f)

-15.9%

-10.0%

12.0%

2.2%

-6.1%

-0.1%

8.7%

-27.3%

-69.3%

-5.5%

(a)

Includes impact of integration costs associated with the Pringles acquisition.

(b)

Internal net sales growth for 2014 excludes the impact of acquisitions, divestitures, integration costs and impact of foreign currency translation.  Internal net sales growth is a non-GAAP financial measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within these tables.

(c)

We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.

(d)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in selling, general and administrative expense as well as cost of goods sold.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2012 and 2013.  These amounts have been recorded in earnings in the first quarter of 2013 and 2014 respectively.  Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities.  The resulting gains/losses are recognized in the quarter they occur.

(e)

Costs incurred related primarily to the execution of Project K, a global four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  Quarter ended March 30, 2013 has been recast to exclude all restructuring and cost reduction activities from underlying operating profit.

(f)

Underlying internal operating profit growth excludes the impact of foreign currency translation, pension plans and commodity contracts mark-to-market adjustments, costs related to restructuring and cost reduction activities, and if applicable, acquisitions, dispositions, and integration costs associated with the acquisition of Pringles.  The Company believes the use of this non-GAAP measure provides increased transparency and assists in understanding underlying operating performance.  This non-GAAP measure is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table. 

 

 

Kellogg Company and Subsidiaries

Restructuring and cost reduction activities*

(millions)

Quarter ended March 29, 2014

Cost of goods sold

Selling, general and administrative expense

Total

2014

U.S. Morning Foods

$9

$2

$11

U.S. Snacks

5

2

7

U.S. Specialty

-

1

1

North America Other

2

1

3

Europe

5

7

12

Latin America

-

4

4

Asia Pacific

4

2

6

Corporate

-

10

10

Total

$25

$29

$54

Quarter ended March 30, 2013

Cost of goods sold

Selling, general and administrative expense

Total

2013

U.S. Morning Foods

$1

$2

$3

U.S. Snacks

1

2

3

U.S. Specialty

-

1

1

North America Other

-

-

-

Europe

-

-

-

Latin America

-

-

-

Asia Pacific

6

-

6

Corporate

-

-

-

Total

$8

$5

$13

2014 Variance - better(worse) than 2013

U.S. Morning Foods

($8)

$ -

($8)

U.S. Snacks

(4)

-

(4)

U.S. Specialty

-

-

-

North America Other

(2)

(1)

(3)

Europe

(5)

(7)

(12)

Latin America

-

(4)

(4)

Asia Pacific

2

(2)

-

Corporate

-

(10)

(10)

Total

($17)

($24)

($41)

*

Restructuring and cost reduction activities include programs which will result in future cash savings and/or reduced depreciation.

Quarter ended March 29, 2014 includes Project K costs.

 

 

Kellogg Company and Subsidiaries

Integration Costs*

(millions)

Quarter ended March 29, 2014

Net Sales

Cost of goods sold

Selling, general and administrative expense

Total

2014

U.S. Snacks

$-

$-

$-

$-

North America Other

-

-

-

-

Europe

-

4

2

6

Asia Pacific

-

-

-

-

Corporate

-

-

1

1

Total

-

$4

$3

$7

Quarter ended March 30, 2013

Net Sales

Cost of goods sold

Selling, general and administrative expense

Total

2013

U.S. Snacks

$-

$-

$3

$3

North America Other

1

-

-

1

Europe

-

3

5

8

Asia Pacific

1

1

3

5

Corporate

-

-

3

3

Total

$2

$4

$14

$20

2014 Variance - better (worse) than 2013

U.S. Snacks

$-

$-

$3

$3

North America Other

1

-

-

1

Europe

-

(1)

3

2

Asia Pacific

1

1

3

5

Corporate

-

-

2

2

Total

$2

$-

$11

$13

*

Integration costs are charges incurred by the Company as a direct result of the work performed for the acquisition of the Pringles business.

 

 

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Operating Profit

to Comparable Operating Profit

Quarter ended March 29, 2014

U.S.

U.S.

U.S.

N. America

Kellogg

(millions)

Morning Foods

Snacks

Specialty

Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated

Reported Operating Profit

$128

$95

$87

$72

$67

$48

$14

$103

$614

Mark-to-market (a)

-

-

-

-

-

-

-

116

116

Restructuring and cost reduction activities (b)

(11)

(7)

(1)

(3)

(12)

(4)

(6)

(10)

(54)

Underlying Operating Profit (c)

$139

$102

$88

$75

$79

$52

$20

($3)

$552

Pringles integration costs

-

-

-

-

(6)

-

-

(1)

(7)

Comparable Operating Profit(d)

$139

$102

$88

$75

$85

$52

$20

($2)

$559

Quarter ended March 30, 2013

U.S.

U.S.

U.S.

N. America

Kellogg

(millions)

Morning Foods

Snacks

Specialty

Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated

Reported Operating Profit

$163

$106

$78

$75

$71

$48

$21

($59)

$503

Mark-to-market (a)

-

-

-

-

-

-

-

(54)

(54)

Restructuring and cost reduction activities (b)

(3)

(3)

(1)

-

-

-

(6)

-

(13)

Underlying Operating Profit (c)

$166

$109

$79

$75

$71

$48

$27

($5)

$570

Pringles integration costs

-

(3)

-

(1)

(8)

-

(5)

(3)

(20)

Comparable Operating Profit (d)

$166

$112

$79

$76

$79

$48

$32

($2)

$590

 

(a)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in selling, general and administrative expense as well as cost of goods sold.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2012 and 2013.  These amounts have been recorded in earnings in the first quarter of 2013 and 2014 respectively.  Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities.  The resulting gains/losses are recognized in the quarter they occur.

(b)

Costs incurred related primarily to the execution of Project K, a global four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  Quarter ended March 30, 2013 has been recast to exclude all restructuring and cost reduction activities from underlying operating profit.

(c)

Underlying Operating Profit excludes the impact of pension plans and commodity contracts mark-to-market adjustments and costs related to restructuring and cost reduction activities.  The Company believes the use of this non-GAAP measure provides increased transparency and assists in understanding underlying operating performance.  This non-GAAP measure is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  Underlying operating profit for the quarters ended March 29, 2014 and March 30, 2013 includes postretirement benefit plan expense (income) of ($22) million and ($4) million, respectively. 

(d)

Comparable Operating Profit is a non-GAAP measure that excludes the impact of mark-to-market adjustments on pension plans and commodity contracts, the impact of restructuring and cost reduction activities and the impact of integration costs related to the acquisition of the Pringles business. 

 

 

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported EPS to Comparable EPS

 Quarter ended

March 29, 2014

March 30, 2013

Change vs. prior year

Reported EPS

$1.12

$0.85

31.8%

Mark-to-market(a)

0.22

(0.10)

37.1%

Restructuring and cost reduction activities(b)

(0.10)

(0.03)

-7.3%

Pringles Integration costs

(0.01)

(0.04)

3.0%

Comparable EPS(c)

$1.01

$1.02

-1.0%

(a)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in selling, general and administrative expense as well as cost of goods sold.  Actuarial gains/losses for pension plans are recognized in the year they occur.  A portion of these mark-to-market adjustments were capitalized as inventoriable cost at the end of 2012 and 2013.  These amounts have been recorded in earnings in the first quarter of 2013 and 2014 respectively.  Mark-to-market adjustments for commodities reflect the changes in the fair value of contracts for the difference between contract and market prices for the underlying commodities.  The resulting gains/losses are recognized in the quarter they occur.

(b)

Costs incurred related primarily to the execution of Project K, a global four-year efficiency and effectiveness program. The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.  The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.  Quarter ended March 30, 2013 has been recast to exclude all restructuring and cost reduction activities from Comparable EPS.

(c)

Comparable EPS is a non-GAAP measure that excludes the impact of mark-to-market adjustments on pension plans and commodity contracts, the impact of costs related to restructuring and cost reduction activities, and the impact of integration costs related to the acquisition of the Pringles business.   

 

 

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Effective Tax Rate to Underlying Effective Tax Rate

Quarter ended

March 29, 2014

Reported Effective Tax Rate

28.9%

Mark-to-market (a)

0.5%

Restructuring and cost reduction activities (b)

-0.4%

Underlying Reported Effective Tax Rate (c)

28.8%

(a)

Net income from mark-to-market adjustments, in general, were incurred in jurisdictions with tax rates higher than our reported effective tax rate during the first quarter of 2014.

(b)

Costs incurred related to the execution of restructuring and cost reduction activities, in general, were incurred in jurisdictions with tax rates higher than our effective tax rate during the first quarter of 2014.

(c)

Underlying reported effective tax rate is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.

 

 

SOURCE Kellogg Company



RELATED LINKS

http://www.kelloggcompany.com