Kellogg Company Reports Fourth-Quarter and Full-Year 2014 Results, Provides Guidance For 2015, and Changes Its Long-Term Sales Target

Feb 12, 2015, 08:00 ET from Kellogg Company

BATTLE CREEK, Mich., Feb. 12, 2015 /PRNewswire/ -- Kellogg Company (NYSE: K) today announced that fourth quarter 2014 reported net sales were $3.5 billion, an increase of 0.3 percent from the fourth quarter of 2013.  Fourth quarter comparable net sales* decreased by 2.2 percent.  Full-year 2014 reported net sales decreased by 1.4 percent to $14.6 billion.  Full-year comparable net sales decreased by 2.0 percent.  Comparable net sales results exclude the effects of foreign currency translation, acquisitions, dispositions, costs associated with the efficiency-and-effectiveness program (Project K), differences in the number of shipping days, and integration costs. 

The reported quarterly operating loss was $422 million; this included a significant non-cash mark-to-market adjustment of $822 million, which was primarily driven by the impact that changes in interest rates had on pension plans; comparable operating profit* decreased by 0.1 percent in the fourth quarter.  Comparable results for operating profit exclude the effects of foreign currency translation, acquisitions, dispositions, Project K costs, mark-to-market accounting, differences in the number of shipping days, integration costs, and other factors that affect comparability.  Full-year reported operating profit decreased by 63.9 percent; this included significant impacts from the effect of mark-to-market adjustments and costs associated with Project K.  Full-year comparable operating profit decreased by 3.9 percent. 

* Comparable sales growth, comparable operating profit growth, comparable earnings, currency-neutral comparable earnings, comparable 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.

The reported fourth quarter 2014 net earnings loss was $293 million, or a loss of $0.82 per diluted share; comparable earnings* were $0.84 per share; this represented a decrease of 1.2 percent from the fourth quarter of 2013's comparable earnings per share.  Reported full-year 2014 net earnings were $632 million, or $1.75 per diluted share; comparable full-year earnings were $3.81 per share, a decrease of 1.0 percent from 2013's comparable earnings per share.  Please see the table below and the appendices to this press release for detail regarding items that affect comparability. 

 

Reconciliation of Reported to Comparable Earnings Per Share










Fourth Quarter 2014
($)


Full-Year 2014
($)








Reported EPS


(0.82)



1.75


Mark-to-Market


(1.52)



(1.42)


Project K


(0.16)



(0.61)


Integration


(0.04)



(0.09)


Other Items


(0.01)



(0.01)


53rd Week


0.07



0.07









Comparable EPS


0.84



3.81


Foreign Exchange


(0.02)



(0.01)
















Currency-Neutral Comparable* EPS


0.86



3.82
















 

"In 2014, we have been addressing the challenges we have faced in some of the company's developed businesses," said John Bryant, Kellogg Company's president and chief executive officer.  "Project K, our four-year efficiency-and-effectiveness program, is providing flexibility, and we have invested in brand-building initiatives, in-store sales capabilities, and new, improved products.  We expect that 2015 will be a rebuilding year for us and that our investment will provide a strong platform for future growth."

North America

Kellogg North America's reported net sales increased by 2.3 percent in the fourth quarter and decreased by 2.2 percent for the full year.  Comparable net sales declined by 3.9 percent for the fourth quarter and by 3.4 percent for the full year.  The U.S. Morning Foods segment posted a decrease in comparable net sales of 7.7 percent in the fourth quarter and a decrease of 5.7 percent for the full year.  U.S. Snacks posted a decline in comparable net sales of 3.1 percent in the fourth quarter and a decline of 2.4 percent for the full year.  The U.S. Specialty Channels business posted a decline in comparable net sales of 1.0 percent in the fourth quarter and a decline of 1.4 percent for the full year.  The North America Other business posted comparable net sales growth of 1.3 percent in the fourth quarter and a decline in comparable net sales of 1.8 percent for the full year.

International

Comparable net sales growth in the Latin American business was 7.2 percent in the fourth quarter; comparable growth for the full year was 3.9 percent.  Comparable net sales in our European business decreased by 1.2 percent in the fourth quarter and by 0.7 percent for the full year.  The Asia Pacific business posted a decline in comparable net sales of 1.2 percent in the fourth quarter and an increase of 0.7 percent for the full year.

Interest and Tax

Kellogg's interest expense totaled $53 million in the fourth quarter and was $209 million for the year.  Including the impact of mark-to-market adjustments and costs related to Project K, the reported effective tax rate was 39.1 percent for the fourth quarter and 22.6 percent for the full year.  Excluding the mark-to-market adjustments and costs related to Project K, the comparable effective tax rate* was 28.2 percent for the year, lower than expectations due to the geographic mix of profits.

Cash flow

Cash flow*, a non-GAAP measure defined as cash from operating activities less capital expenditures, was $1.2 billion for the full year; this was greater than expected and was due to improved working capital and changes to tax legislation.  Kellogg repurchased approximately $690 million of shares during the year.     

Kellogg Issues Guidance for 2015

The company issued guidance for comparable net sales in 2015, which are expected to remain approximately unchanged year-over-year.  Kellogg expects full-year 2015 comparable operating profit to decrease at a rate between two and four percent; this includes a negative impact of between three and four percentage points from the rebasing of incentive compensation for 2015.  Full-year 2015 currency-neutral comparable earnings per share are anticipated to be in a range between two percent lower and approximately unchanged; this estimate also includes 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.

Kellogg Announces a Change to Its Long-Term Sales Target

The company also announced that it is making a change to its long-term financial targets.  It now expects low-single-digit (one to three percent) comparable annual revenue growth, lower than the previous target of between three and four percent growth.  The company's targets for mid-single-digit (four to six percent) annual comparable operating profit growth and high-single-digit (seven to nine percent) annual, currency-neutral comparable earnings per share growth remain unchanged.

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on Thursday, February 12, 2015 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 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.

[Kellogg Company Financial News]

 

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)










Quarter ended

Year ended



January 3,

  December 28,


January 3,

  December 28,

(Results are unaudited)

2015

2013


2015

2013








Net sales

$3,514

$3,501


$14,580

$14,792








Cost of goods sold

2,658

1,718


9,517

8,689

Selling, general and administrative expense

1,278

523


4,039

3,266








Operating profit

(422)

1,260


1,024

2,837








Interest expense

53

58


209

235

Other income (expense), net

(4)

12


10

4








Income before income taxes 

(479)

1,214


825

2,606

Income taxes

(187)

394


186

792

Earnings (loss) from joint ventures

(1)

(1)


(6)

(6)

Net income

($293)

$819


$633

$1,808

Net income (loss) attributable to noncontrolling interests 

-

1


1

1

Net income attributable to Kellogg Company 

($293)

$818


$632

$1,807








Per share amounts:







Basic

($.82)

$2.26


$1.76

$4.98


Diluted

($.82)

$2.24


$1.75

$4.94








Dividends per share

$0.49

$0.46


$1.90

$1.80








Average shares outstanding:







Basic

355

363


358

363


Diluted

355

364


360

365








Actual shares outstanding at period end




356

363















 

Kellogg Company and Subsidiaries



SELECTED OPERATING SEGMENT DATA









(millions)









Quarter ended

Year-to-date period ended



January 3,

  December 28,


January 3,

  December 28,

(Results are unaudited)

2015

2013


2015

2013








Net sales







U.S. Morning Foods

$816

$808


$3,338

$3,465


U.S. Snacks

850

830


3,495

3,534


U.S. Specialty

280

270


1,198

1,202


North America Other

357

342


1,468

1,515


Europe 

681

716


2,887

2,860


Latin America 

287

281


1,205

1,195


Asia Pacific

243

254


989

1,021


Consolidated

$3,514

$3,501


$14,580

$14,792















Operating profit 







U.S. Morning Foods

$102

$10


$491

$485


U.S. Snacks

103

106


395

447


U.S. Specialty

57

55


266

265


North America Other

60

52


252

275


Europe 

59

36


240

256


Latin America 

24

28


169

157


Asia Pacific

13

(3)


45

60


Total Reportable Segments

418

284


1,858

1,945


Corporate 

(840)

976


(834)

892


Consolidated

($422)

$1,260


$1,024

$2,837















 

Kellogg Company and Subsidiaries




CONSOLIDATED STATEMENT OF CASH FLOWS




(millions)










Year-to-date period ended



January 3,

December 28,

(unaudited)


2015

2013





Operating activities




Net income


$633

$1,808

Adjustments to reconcile net income to 




operating cash flows:




  Depreciation and amortization


503

532

  Postretirement benefit plan expense (benefit)

803

(1,078)

  Deferred income taxes


(300)

317

  Other 


(42)

25

Postretirement benefit plan contributions


(53)

(48)

Changes in operating assets and liabilities, net of acquisitions

249

251





Net cash provided by (used in) operating activities

1,793

1,807





Investing activities




Additions to properties


(582)

(637)

Other


9

(4)





Net cash provided by (used in) investing activities

(573)

(641)





Financing activities




Net issuances (reductions) of notes payable


89

(326)

Issuances of long-term debt


952

645

Reductions of long-term debt


(960)

(762)

Net issuances of common stock


217

475

Common stock repurchases 


(690)

(544)

Cash dividends


(680)

(653)

Other


9

24





Net cash provided by (used in) financing activities

(1,063)

(1,141)





Effect of exchange rate changes on cash and cash equivalents


13

(33)





Increase (decrease) in cash and cash equivalents

170

(8)

Cash and cash equivalents at beginning of period

273

281





Cash and cash equivalents at end of period

$443

$273









Supplemental financial data:








Net cash provided by (used in) operating activities

$1,793

$1,807

Additions to properties


(582)

(637)

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

$1,211

$1,170









(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)











January 3,

 December 28,




2015

2013




(unaudited)

*






Current assets





Cash and cash equivalents



$443

$273

Accounts receivable, net



1,276

1,424

Inventories:





    Raw materials and supplies



327

319

    Finished goods and materials in process



952

929

Deferred income taxes



184

195

Other prepaid assets



152

127






Total current assets



3,334

3,267






Property, net of accumulated depreciation





  of $5,526 and $5,501



3,769

3,856

Goodwill



4,971

5,051

Other intangibles, net of accumulated amortization





  of $43 and $34



2,295

2,367

Pension



250

419

Other assets



507

514






Total assets



$15,126

$15,474






Current liabilities





Current maturities of long-term debt



$607

$289

Notes payable



828

739

Accounts payable



1,528

1,432

Accrued advertising and promotion



446

476

Accrued income taxes



39

69

Accrued salaries and wages



320

327

Other current liabilities



590

503






Total current liabilities



4,358

3,835






Long-term debt



5,935

6,330

Deferred income taxes 



726

928

Pension liability



777

277

Nonpension postretirement benefits



82

68

Other liabilities



397

429






Commitments and contingencies










Equity





Common stock, $.25 par value



105

105

Capital in excess of par value



678

626

Retained earnings



6,689

6,749

Treasury stock, at cost



(3,470)

(2,999)

Accumulated other comprehensive income (loss) 



(1,213)

(936)






Total Kellogg Company equity



2,789

3,545






Noncontrolling interests 



62

62






Total equity



2,851

3,607






Total liabilities and equity



$15,126

$15,474

* Condensed from audited financial statements.





 


Kellogg Company and Subsidiaries





Analysis of net sales and operating profit performance
























Fourth 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

$816

$850

$280

$357

$2,303

$681

$287

$243

$0

$3,514

2013 net sales

$808

$830

$270

$342

$2,250

$716

$281

$254

$0

$3,501

% change - 2014 vs. 2013:











As Reported

0.9%

2.4%

3.7%

4.5%

2.3%

-4.8%

2.1%

-4.6%

0.0%

0.3%


Acquisitions/Divestitures

0.0%

0.0%

-1.0%

0.0%

-0.1%

0.0%

0.0%

0.0%

0.0%

-0.1%


Integration impact (a)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-0.1%

0.0%

0.0%


Project K (c)

0.0%

0.0%

0.0%

-0.2%

-0.1%

0.0%

0.0%

0.0%

0.0%

-0.1%


Differences in shipping days (d)

8.6%

5.5%

5.7%

7.1%

6.9%

4.5%

0.3%

3.5%

0.0%

5.6%


Foreign currency impact

0.0%

0.0%

0.0%

-3.7%

-0.5%

-8.1%

-5.4%

-6.8%

0.0%

-2.9%

Comparable growth (f)

-7.7%

-3.1%

-1.0%

1.3%

-3.9%

-1.2%

7.2%

-1.2%

0.0%

-2.2%














      Volume (tonnage) (g)





-3.5%

0.3%

0.1%

-1.5%

0.0%

-2.3%


      Pricing/mix





-0.4%

-1.5%

7.1%

0.3%

0.0%

0.1%







































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 

$102

$103

$57

$60

$322

$59

$24

$13

($840)

($422)

2013 operating profit

$10

$106

$55

$52

$223

$36

$28

($3)

$976

$1,260

% change - 2014 vs. 2013:











As Reported

867.6%

-1.7%

2.6%

16.9%

44.6%

65.8%

-15.6%

510.4%

-186.0%

-133.5%


Acquisitions/Divestitures

0.0%

0.0%

-0.2%

0.0%

0.0%

0.0%

0.0%

0.8%

0.0%

0.0%


Integration impact (a)

0.0%

0.7%

0.0%

0.5%

0.3%

8.6%

0.5%

-8.5%

17.2%

0.3%


Mark-to-market (b)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-226.7%

-191.4%


Project K (c)

855.8%

3.5%

2.9%

6.4%

41.1%

31.4%

-2.2%

483.4%

268.4%

53.4%


Differences in shipping days (d)

18.7%

4.7%

4.9%

11.3%

10.1%

7.9%

-9.7%

-1.2%

-42.7%

7.6%


Other costs impacting comparability (e)

0.0%

0.0%

0.0%

0.0%

0.0%

-0.4%

0.0%

-0.9%

-91.9%

-1.3%


Foreign currency impact

0.6%

0.0%

0.0%

-3.7%

-0.4%

-5.6%

-0.2%

-12.7%

-18.3%

-2.0%

Comparable growth (f)

-7.5%

-10.6%

-5.0%

2.4%

-6.5%

23.9%

-4.0%

49.5%

-92.0%

-0.1%













(a)

Includes impact of integration costs associated with the Pringles acquisition.




(b)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense.  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 2014, 2013, and 2012. The amounts capitalized at the end of 2013 and 2012 have been recognized in the first quarter of 2014 and 2013, 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. 


(c)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results. 

(d)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(e)

Consists of costs related to evaluation of potential acquisitions.

(f)

Comparable net sales growth and comparable operating profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(g)

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

 


Kellogg Company and Subsidiaries






Analysis of net sales and operating profit performance


























Year ended 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

$3,338

$3,495

$1,198

$1,468

$9,499

$2,887

$1,205

$989

$0

$14,580

2013 net sales

$3,465

$3,534

$1,202

$1,515

$9,716

$2,860

$1,195

$1,021

$0

$14,792

% change - 2014 vs. 2013:











As Reported

-3.7%

-1.1%

-0.3%

-3.1%

-2.2%

0.9%

0.9%

-3.1%

0.0%

-1.4%


Acquisitions/Divestitures

0.0%

0.0%

-0.2%

0.0%

0.0%

0.0%

0.0%

-0.1%

0.0%

-0.1%


Integration impact (a)

0.0%

0.0%

0.0%

0.1%

0.0%

0.0%

0.0%

0.3%

0.0%

0.1%


Project K (c)

0.0%

0.0%

0.0%

-0.1%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%


Differences in shipping days (d)

2.0%

1.3%

1.3%

1.6%

1.6%

1.2%

0.1%

0.9%

0.0%

1.4%


Foreign currency impact

0.0%

0.0%

0.0%

-2.9%

-0.4%

0.4%

-3.1%

-4.9%

0.0%

-0.8%

Comparable growth (f)

-5.7%

-2.4%

-1.4%

-1.8%

-3.4%

-0.7%

3.9%

0.7%

0.0%

-2.0%














      Volume (tonnage) (g)





-3.2%

0.0%

-5.4%

-0.1%

0.0%

-2.6%


      Pricing/mix





-0.2%

-0.7%

9.3%

0.8%

0.0%

0.6%







































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 

$491

$395

$266

$252

$1,404

$240

$169

$45

($834)

$1,024

2013 operating profit

$485

$447

$265

$275

$1,472

$256

$157

$60

$892

$2,837

% change - 2014 vs. 2013:











As Reported

1.1%

-11.5%

0.4%

-8.4%

-4.6%

-6.2%

7.3%

-24.3%

-193.4%

-63.9%


Acquisitions/Divestitures

0.0%

0.0%

0.0%

0.0%

-0.1%

0.0%

0.0%

1.2%

0.0%

0.1%


Integration impact (a)

0.0%

2.4%

0.0%

0.5%

0.8%

0.9%

0.6%

3.1%

8.0%

1.0%


Mark-to-market (b)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-203.3%

-59.6%


Project K (c)

8.4%

-6.4%

0.7%

-2.9%

0.6%

-19.3%

-1.6%

-13.7%

-28.5%

-2.7%


Differences in shipping days (d)

3.4%

1.2%

1.0%

2.4%

2.2%

1.8%

-1.7%

-0.2%

-12.9%

1.6%


Other costs impacting comparability (e)

0.0%

0.0%

0.0%

0.0%

0.0%

-0.1%

0.0%

-0.2%

-22.5%

-0.3%


Foreign currency impact

0.1%

0.0%

0.0%

-3.2%

-0.5%

2.7%

1.5%

-5.3%

13.3%

-0.1%

Comparable growth (f)

-10.8%

-8.7%

-1.3%

-5.2%

-7.6%

7.8%

8.5%

-9.2%

52.5%

-3.9%













(a)

Includes impact of integration costs associated with the Pringles acquisition.




(b)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense.  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 2014, 2013, and 2012. The amounts capitalized at the end of 2013 and 2012 have been recognized in the first quarter of 2014 and 2013, 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. 


(c)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results. 

(d)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(e)

Consists of costs related to evaluation of potential acquisitions.

(f)

Comparable net sales growth and comparable operating profit growth are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

(g)

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

 

Kellogg Company and Subsidiaries


Restructuring and cost reduction activities



(millions)













Quarter ended January 3, 2015


Year-to-date period ended January 3, 2015




Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total


Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total

2014












U.S. Morning Foods

$ -

$16

$3

$19


$ -

$52

$8

$60


U.S. Snacks

-

12

3

15


-

51

6

57


U.S. Specialty

-

-

1

1


-

1

2

3


North America Other

1

5

1

7


1

13

4

18


Europe

-

7

10

17


-

37

43

80


Latin America

1

-

1

2


1

1

6

8


Asia Pacific

-

12

3

15


-

29

8

37


Corporate

-

(20)

18

(2)


-

(32)

67

35



Total

$2

$32

$40

$74


$2

$152

$144

$298















Quarter ended December 28, 2013


Year-to-date period ended December 28, 2013



Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total


Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total

2013












U.S. Morning Foods

$ -

$94

$3

$97


$ -

$101

$8

$109


U.S. Snacks

-

17

3

20


-

21

9

30


U.S. Specialty

-

1

1

2


-

2

3

5


North America Other

-

8

2

10


-

8

3

11


Europe

-

18

3

21


-

21

6

27


Latin America

-

0

2

2


-

1

4

5


Asia Pacific

-

22

3

25


-

29

3

32


Corporate

-

12

12

24


-

12

19

31



Total

$ -

$172

$29

$201


$ -

$195

$55

$250













2014 Variance - better(worse) than 2013










U.S. Morning Foods

$ -

$78

$ -

$78


$ -

$49

$ -

$49


U.S. Snacks

-

6

-

6


-

(30)

3

(27)


U.S. Specialty

-

1

-

1


-

1

1

2


North America Other

(1)

3

1

3


(1)

(5)

(1)

(7)


Europe

-

11

(7)

4


-

(16)

(37)

(53)


Latin America

(1)

(1)

2

-


(1)

-

(2)

(3)


Asia Pacific

-

11

(1)

10


-

-

(5)

(5)


Corporate

-

32

(5)

27


-

44

(48)

(4)



Total

$(2)

$141

$(10)

$129


$(2)

$43

$(89)

$(48)













 


Kellogg Company and Subsidiaries


Integration Costs*


(millions)

























Quarter ended January 3, 2015


Year-to-date period ended January 3, 2015




Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total


Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total

2014












U.S. Snacks

$ -

$ -

$ -

$ -


$ -

$ -

$ -

$ -


North America Other

-

-

-

-


-

-

-

-


Europe

-

4

11

15


-

18

18

36


Latin America

-

-

-

-


-

-

-

-


Asia Pacific

1

2

1

4


1

4

2

7


Corporate

-

-

(1)

(1)


-

-

-

-



Total

$1

$6

$11

$18


$1

$22

$20

$43















Quarter ended December 28, 2013


Year-to-date period ended December 28, 2013




Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total


Net Sales

Cost of
goods sold

Selling, general and
administrative
expense

Total

2013












U.S. Snacks

$ -

$ -

$1

$1


$ -

$1

$11

$12


North America Other

-

-

-

-


1

-

-

1


Europe

-

6

10

16


-

13

21

34


Latin America

-

-

-

-


-

-

1

1


Asia Pacific

-

-

-

-


4

1

6

11


Corporate

-

-

-

-


-

-

6

6



Total

$ -

$6

$11

$17


$5

$15

$45

$65













2014 Variance - better(worse) than 2013










U.S. Snacks

$ -

$ -

$1

$1


$ -

$1

$11

$12


North America Other

-

-

-

-


1

-

-

1


Europe

-

2

(1)

1


-

(5)

3

(2)


Latin America

-

-

-

-


-

-

1

1


Asia Pacific

(1)

(2)

(1)

(4)


3

(3)

4

4


Corporate

-

-

1

1


-

-

6

6



Total

$(1)

$ -

$0

$(1)


$4

$(7)

$25

$22













*

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 Net Sales to Comparable Net Sales



































Quarter ended January 3, 2015













U.S.

U.S.

U.S.

N. America





Kellogg

(millions)

Morning Foods

Snacks

Specialty

Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$816

$850

$280

$357

$681

$287

$243

$0

$3,514


Integration impact (a)

-

-

-

-

-

-

(1)

-

(1)


Project K (b)

-

-

-

(1)

-

(1)

-

-

(2)


Differences in shipping days (c)

70

46

16

24

32

1

8

-

197

Comparable Net Sales (d)

$746

$804

$264

$334

$649

$287

$236

$0

$3,320






















Quarter ended December 28, 2013













U.S.

U.S.

U.S.

N. America





Kellogg

(millions)

Morning Foods

Snacks

Specialty

Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$808

$830

$270

$342

$716

$281

$254

$0

$3,501


Integration impact (a)

-

-

-

-

-

-

-

-

-


Project K (b)

-

-

-

-

-

-

-

-

-


Differences in shipping days (c)

-

-

-

-

-

-

-

-

-

Comparable Net Sales (d)

$808

$830

$270

$342

$716

$281

$254

$0

$3,501













(a)

Includes impact of integration costs associated with the Pringles acquisition.

(b)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results. 

(c)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(d)

Comparable net sales and comparable operating profit are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance. 

 


Kellogg Company and Subsidiaries



Reconciliation of Non-GAAP Amounts - Reported Net Sales to Comparable Net Sales



































Year-to-date period ended January 3, 2015













U.S.

U.S.

U.S.

N. America





Kellogg

(millions)

Morning Foods

Snacks

Specialty

Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$3,338

$3,495

$1,198

$1,468

$2,887

$1,205

$989

$0

$14,580


Integration impact (a)

-

-

-

-

-

-

(1)

-

(1)


Project K (b)

-

-

-

(1)

-

(1)

-

-

(2)


Differences in shipping days (c)

70

46

16

24

32

1

8

-

197

Comparable Net Sales (d)

$3,268

$3,449

$1,182

$1,445

$2,855

$1,205

$982

$0

$14,386






















Year-to-date period ended December 28, 2013













U.S.

U.S.

U.S.

N. America





Kellogg

(millions)

Morning Foods

Snacks

Specialty

Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Net Sales

$3,465

$3,534

$1,202

$1,515

$2,860

$1,195

$1,021

$0

$14,792


Integration impact (a)

-

-

-

(1)

-

-

(4)

-

(5)


Project K (b)

-

-

-

-

-

-

-

-

-


Differences in shipping days (c)










Comparable Net Sales (d)

$3,465

$3,534

$1,202

$1,516

$2,860

$1,195

$1,025

$0

$14,797













(a)

Includes impact of integration costs associated with the Pringles acquisition.

(b)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results. 

(c)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(d)

Comparable net sales and comparable operating profit are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance. 

 


Kellogg Company and Subsidiaries



Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Comparable Operating Profit



































Quarter ended January 3, 2015













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

$102

$103

$57

$60

$59

$24

$13

$(840)

($422)


Integration impact (a)

-

-

-

-

(15)

-

(4)

1

(18)


Mark-to-market (b)

-

-

-

-

-

-

-

(822)

(822)


Project K (c)

(19)

(15)

(1)

(7)

(17)

(2)

(15)

2

(74)


Differences in shipping days (d)

20

6

3

7

6

(3)

-

(3)

36


Other costs impacting comparability (e)

-

-

-

-

-

-

-

(6)

(6)

Comparable Operating Profit (f)

$101

$112

$55

$60

$85

$29

$32

$(12)

$462






















Quarter ended December 28, 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

$10

$106

$55

$52

$36

$28

($3)

$976

$1,260


Integration impact (a)

-

(1)

-

-

(16)

-

-

-

(17)


Mark-to-market (b)

-

-

-

-

-

-

-

1,006

1,006


Project K (c)

(97)

(20)

(2)

(10)

(21)

(2)

(25)

(24)

(201)


Differences in shipping days (d)

-

-

-

-

-

-

-

-

-


Other costs impacting comparability (e)

-

-

-

-

-

-

-

-

-

Comparable Operating Profit (f)

$107

$127

$57

$62

$73

$30

$22

$(6)

$472













(a)

Includes impact of integration costs associated with the Pringles acquisition.

(b)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense.  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 2014, 2013, and 2012. The amounts capitalized at the end of 2013 and 2012 have been recognized in the first quarter of 2014 and 2013, 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. 

(c)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results. 

(d)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(e)

Consists of costs related to evaluation of potential acquisitions.

(f)

Comparable net sales and comparable operating profit are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

 


Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Comparable Operating Profit



































Year-to-date period ended January 3, 2015













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

$491

$395

$266

$252

$240

$169

$45

$(834)

$1,024


Integration impact (a)

-

-

-

-

(36)

-

(7)

-

(43)


Mark-to-market (b)

-

-

-

-

-

-

-

(784)

(784)


Project K (c)

(60)

(57)

(3)

(18)

(80)

(8)

(37)

(35)

(298)


Differences in shipping days (d)

20

6

3

7

6

(3)

-

(3)

36


Other costs impacting comparability (e)

-

-

-

-

-

-

-

(6)

(6)

Comparable Operating Profit (f)

$531

$446

$266

$263

$350

$180

$89

$(6)

$2,119






















Year-to-date period ended December 28, 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

$485

$447

$265

$275

$256

$157

$60

$892

$2,837


Integration impact (a)

-

(12)

-

(1)

(34)

(1)

(11)

(6)

(65)


Mark-to-market (b)

-

-

-

-

-

-

-

947

947


Project K (c)

(109)

(30)

(5)

(11)

(27)

(5)

(32)

(31)

(250)


Differences in shipping days (d)

-

-

-

-

-

-

-

-

-


Other costs impacting comparability (e)

-

-

-

-

-

-

-

-

-

Comparable Operating Profit (f)

$594

$489

$270

$287

$317

$163

$103

$(18)

$2,205













(a)

Includes impact of integration costs associated with the Pringles acquisition.

(b)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense.  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 2014, 2013, and 2012. The amounts capitalized at the end of 2013 and 2012 have been recognized in the first quarter of 2014 and 2013, 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. 

(c)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results. 

(d)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(e)

Consists of costs related to evaluation of potential acquisitions.

(f)

Comparable net sales and comparable operating profit are non-GAAP measures which are reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

 


Kellogg Company and Subsidiaries


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













 Quarter ended


Year-to-date period ended




January 3,
2015

December 28,
2013


January 3,
2015

December 28,
2013








Reported EPS

($0.82)

$2.24


$1.75

$4.94


Pringles integration costs (a)


(0.04)

(0.03)


(0.09)

(0.13)


Mark-to-market (b)


(1.52)

1.83


(1.42)

1.72


Project K (c)


(0.16)

(0.41)


(0.61)

(0.50)


Differences in shipping days (d)


0.07

-


0.07

-


Other costs impacting comparability (e)


(0.01)

-


(0.01)

-

Comparable EPS (f)

$0.84

$0.85


$3.81

$3.85


Impact of foreign currency translation

($0.02)



($0.01)


Currency-neutral comparable EPS

$0.86



$3.82










(a)

Includes impact of integration costs associated with the Pringles acquisition.

(b)

Includes mark-to-market adjustments for pension plans and commodity contracts as reflected in cost of goods sold and selling, general and administrative expense.  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 2014, 2013, and 2012. The amounts capitalized at the end of 2013 and 2012 have been recognized in the first quarter of 2014 and 2013, 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. 

(c)

Costs incurred related primarily to execution of Project K, a 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.  Prior periods presented have been recast to exclude all restructuring and cost reduction activities from  comparable results. Previously, only costs associated with Project K were excluded from comparable results.

(d)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(e)

Consists of costs related to evaluation of potential acquisitions.

(f)

Comparable EPS is a non-GAAP measure which is reconciled to the directly comparable measure in accordance with U.S. GAAP within this table.  We believe the use of such non-GAAP measures provides increased transparency and assists in understanding our comparable operating performance.  

 


Kellogg Company and Subsidiaries



Reconciliation of Non-GAAP Amounts



Reported Effective Tax Rate to Comparable Effective Tax Rate







Quarter ended


Year-to-date period
ended





January 3, 2015


January 3, 2015









Reported Effective Tax Rate


39.1%


22.6%



Integration impact


-0.1%


0.0%



Mark-to-market (a)


12.1%


-5.8%



Project K (b)


0.5%


0.2%



Differences in shipping days (c)


0.2%


0.0%



Other costs impacting comparability (d)


-0.1%


0.0%


Comparable Effective Tax Rate (e)


26.5%


28.2%














(a)

Mark-to-market adjustments, in general, were incurred in jurisdictions with tax rates higher than our reported effective tax rate during the quarter and year-to-date period ended January 3, 2015.

(b)

Costs incurred related to the execution of restructuring and cost reduction activities, in general, were incurred in jurisdictions with tax rates lower than our effective tax rate during the quarter and year-to-date period ended January 3, 2015.

(c)

Difference in shipping days resulting from 53rd week of business results that occurred in the fourth quarter of 2014.

(d)

Consists of costs related to evaluation of potential acquisitions.

(e)

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

 

SOURCE Kellogg Company



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