Kellogg Company Reports Fourth-Quarter and Full-Year Results and Provides Guidance For 2014

BATTLE CREEK, Mich., Feb. 6, 2014 /PRNewswire/ -- Kellogg Company (NYSE: K) today announced that fourth quarter 2013 reported net sales were $3.5 billion, a decrease of 1.7 percent from the fourth quarter of 2012.  Fourth quarter internal net sales* decreased by 0.9 percent.  Full-year 2013 reported net sales increased by 4.2 percent to $14.8 billion, an increase of $595 million from full-year 2012 results.  Full-year internal net sales increased by 0.3 percent.  Internal results exclude the effects of foreign currency translation, acquisitions, dispositions, and integration costs. 

Reported quarterly operating profit was $1.3 billion; this included significant mark-to-market adjustments which were driven by the impact that asset returns and changes in interest rates had on pension plans; underlying internal operating profit* increased by 8.8 percent in the fourth quarter.  Underlying internal results exclude the effects of foreign currency translation, acquisitions, dispositions, mark-to-market accounting, integration, and efficiency-and-effectiveness program (Project K) costs.  Full-year reported operating profit increased by 81.6 percent; this also included mark-to-market adjustments and the inclusion of very strong results posted by Pringles for the full year.  Full-year underlying internal operating profit increased by 1.3 percent. 

Reported fourth quarter 2013 net earnings were $818 million, or $2.24 per diluted share.  This quarter's reported earnings per share included a benefit from mark-to-market of $1.83 per share, $0.39 per share of costs associated with Project K, and approximately $0.03 per share of integration costs related to the acquisition of Pringles.  Excluding these items, comparable earnings* were $0.83 per share, an increase of 18.6 percent from the fourth quarter of 2012's comparable earnings per share.  Reported full-year 2013 net earnings were $1.8 billion, or $4.94 per diluted share.  The full-year's reported earnings per share included a benefit from mark-to-market accounting of $1.72 per share, $0.42 per share of costs associated with Project K, and approximately $0.13 per share of integration costs related to the acquisition of Pringles.  Excluding these items, comparable earnings were $3.77 per share, an increase of 4.4 percent from 2012's comparable earnings per share.  Please see the appendices to this press release for tables detailing these items.  Foreign currency translation lowered full-year earnings by $0.07 per share and by $0.02 per share in the fourth quarter. 

"Our Pringles business had an excellent year in 2013, although we continue to face challenges in some of our developed cereal businesses," said John Bryant, Kellogg Company's president and chief executive officer.  "We are executing our strategy, and we are also progressing very well with Project K, our four-year efficiency-and-effectiveness program.  Our expectations are that, over time, Project K will begin to provide us the fuel we need to drive growth in our categories, and across our businesses, in the years to come."

North America

Kellogg North America's reported net sales declined by 2.8 percent in the fourth quarter and increased by 1.9 percent for the full year.  Internal net sales declined by 2.6 percent for the fourth quarter and by 0.9 percent for the full year.  The U.S. Morning Foods segment posted a decrease in internal net sales of four percent in the fourth quarter and a decrease of 1.9 percent for the full year.  U.S. Snacks posted a decline in internal net sales of 3.5 percent in the fourth quarter and a decline of 2.9 percent for the full year.  The U.S. Specialty Channels business posted strong internal net sales growth of 5.1 percent in the fourth quarter and 4.1 percent for the full year.  The North America Other business posted a decline in internal net sales of 2.9 percent in the fourth quarter and an increase of 2.2 percent for the full year.

North American reported operating profit decreased by 36.1 percent in the fourth quarter, primarily due to the effect of costs related to Project K.  Reported operating profit declined by 6.2 percent for the full year.  Underlying internal operating profit decreased by 2.9 in the fourth quarter and by 0.9 percent for the full-year.

International

Internal net sales growth in the Latin American business was three percent in the fourth quarter; internal growth for the full year was 5.5 percent.  Internal net sales in our European business increased by 1.2 percent in the fourth quarter and by 1.7 percent for the full year.  The Asia Pacific business posted internal net sales growth of 4.2 percent in the fourth quarter and three percent for the full year.

Interest and Tax

Kellogg's interest expense totaled $58 million in the fourth quarter and was $235 million for the year.  Including the impact of mark-to-market adjustments and costs related to Project K, the reported effective tax rate was 32.4 percent for the fourth quarter and 30.4 percent for the full year.  Excluding the mark-to-market adjustments and costs related to Project K, the underlying effective tax rate* was 28.3 percent for the year, lower than expectations due to discrete items that concluded in the fourth quarter.

Cash flow

Cash flow*, a non-GAAP measure defined as cash from operating activities less capital expenditures, was $1.17 billion for the full year; this was toward the higher end of the guidance range.  Kellogg repurchased approximately $544 million of shares during the year.     

Kellogg Issues Guidance for 2014

The Company issued guidance for internal net sales growth, which is expected to increase by approximately one percent in 2014.  Kellogg expects full-year underlying internal operating profit to increase at a rate between zero and two percent.  Full-year currency-neutral comparable earnings per share are anticipated to increase at a rate between one and three percent.  Guidance for both operating profit and earnings per share excludes the impact of mark-to-market adjustments, 2014's 53rd week, and costs related to Project K.  Cash flow is expected to be in a range between $1.0 billion and $1.1 billion, which includes all capital spending and the additional cash required by Project K.

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on Thursday, February 6, 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) 201-0168 in the U.S., and (647) 788-4901 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.

* 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.















Kellogg Company and Subsidiaries





CONSOLIDATED STATEMENT OF INCOME






(millions, except per share data)















 Quarter ended


Year ended



  December 28,

   December 29,


  December 28,

   December 29,

(Results are unaudited)

2013

2012


2013

2012








Net sales

$3,501

$3,563


$14,792

$14,197








Cost of goods sold

1,718

2,387


8,689

8,763

Selling, general and administrative expense

523

1,173


3,266

3,872








Operating profit

1,260

3


2,837

1,562








Interest expense

58

66


235

261

Other income (expense), net

12

(6)


4

24








Income before income taxes 

1,214

(69)


2,606

1,325

Income taxes

394

(37)


792

363

Earnings from joint ventures

(1)

-


(6)

(1)

Net income

$819

($32)


$1,808

$961

Net income attributable to noncontrolling interests 

1

-


1

-

Net income attributable to Kellogg Company 

$818

($32)


$1,807

$961








Per share amounts:







Basic

$2.26

($0.09)


$4.98

$2.68


Diluted

$2.24

($0.09)


$4.94

$2.67








Dividends per share

$.46

$.44


$1.80

$1.74








Average shares outstanding:







Basic

363

359


363

358


Diluted

364

359


365

360








Actual shares outstanding at year end




363

361















 

Kellogg Company and Subsidiaries





SELECTED OPERATING SEGMENT DATA





















Quarter ended


Year ended

(millions)


  December 28,

   December 29,


  December 28,

   December 29,

(Results are unaudited)

2013

2012


2013

2012








Net sales







U.S. Morning Foods

$808

$841


$3,465

$3,533


U.S. Snacks

830

856


3,534

3,400


U.S. Specialty

270

257


1,202

1,121


North America Other

342

360


1,515

1,485


Europe 

716

691


2,860

2,527


Latin America 

281

285


1,195

1,121


Asia Pacific

254

273


1,021

1,010


Consolidated

$3,501

$3,563


$14,792

$14,197















Operating profit 







U.S. Morning Foods

$10

$123


$485

$588


U.S. Snacks

106

115


447

476


U.S. Specialty

55

52


265

241


North America Other

52

58


275

265


Europe 

36

51


256

261


Latin America 

28

32


157

167


Asia Pacific

(3)

6


60

85


Total Reportable Segments

284

437


1,945

2,083


Corporate

976

(434)


892

(521)


Consolidated

$1,260

$3


$2,837

$1,562















 

Kellogg Company and Subsidiaries




CONSOLIDATED STATEMENT OF CASH FLOWS




(millions)










Year ended



December 28,

December 29,

(unaudited)


2013

2012





Operating activities




Net income


$1,808

$961

Adjustments to reconcile net income to 




operating cash flows:




  Depreciation and amortization


532

448

  Postretirement benefit plan (income) expense

(1,078)

419

  Deferred income taxes


317

(159)

  Other 


25

(21)

Postretirement benefit plan contributions


(48)

(51)

Changes in operating assets and liabilities


251

161





Net cash provided by (used in) operating activities

1,807

1,758





Investing activities




Additions to properties


(637)

(533)

Acquisitions, net of cash acquired


-

(2,668)

Other


(4)

(44)





Net cash provided by (used in) investing activities

(641)

(3,245)





Financing activities




Net issuances of notes payable


(326)

796

Issuances of long-term debt


645

1,727

Reductions of long-term debt


(762)

(750)

Net issuances of common stock


475

229

Common stock repurchases 


(544)

(63)

Cash dividends


(653)

(622)

Other


24

-





Net cash provided by (used in) financing activities

(1,141)

1,317





Effect of exchange rate changes on cash and cash equivalents


(33)

(9)





Increase (decrease) in cash and cash equivalents

(8)

(179)

Cash and cash equivalents at beginning of period

281

460





Cash and cash equivalents at end of period

$273

$281









Supplemental financial data:








Net cash provided by (used in) operating activities

1,807

1,758

Additions to properties


(637)

(533)

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

$1,170

$1,225













(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)













 December 28,

   December 29,




2013

2012




   (unaudited)

       *






Current assets





Cash and cash equivalents



$273

$281

Accounts receivable, net



1,424

1,454

Inventories:





    Raw materials and supplies



319

300

    Finished goods and materials in process



929

1,065

Deferred income taxes



195

152

Other prepaid assets



127

128






Total current assets



3,267

3,380






Property, net of accumulated depreciation





  of $5,501 and $5,209



3,856

3,782

Goodwill



5,051

5,038

Other intangibles, net of accumulated amortization





  of $62 and $53



2,367

2,359

Pension



419

145

Other assets



514

465






Total assets



$15,474

$15,169






Current liabilities





Current maturities of long-term debt



$289

$755

Notes payable



739

1,065

Accounts payable



1,432

1,402

Accrued advertising and promotion



476

517

Accrued income taxes



69

46

Accrued salaries and wages



327

266

Other current liabilities



503

472






Total current liabilities



3,835

4,523






Long-term debt



6,330

6,082

Deferred income taxes 



928

523

Pension liability



277

886

Nonpension postretirement benefits



68

281

Other liabilities



429

409






Commitments and contingencies










Equity





Common stock, $.25 par value



105

105

Capital in excess of par value



626

573

Retained earnings



6,749

5,615

Treasury stock, at cost



(2,999)

(2,943)

Accumulated other comprehensive income (loss) 



(936)

(946)






Total Kellogg Company equity



3,545

2,404






Noncontrolling interests 



62

61






Total equity



3,607

2,465






Total liabilities and equity



$15,474

$15,169

* Condensed from audited financial statements.





 

Kellogg Company and Subsidiaries























Analysis of net sales and operating profit performance

















Fourth Quarter of 2013 versus 2012 

























U.S.

U.S.

U.S.

North America

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

Other

America

Europe

America

Pacific

orate

dated

2013 net sales

$808

$830

$270

$342

$2,250

$716

$281

$254

$0

$3,501

2012 net sales

$841

$856

$257

$360

$2,314

$691

$285

$273

$0

$3,563

% change - 2013 vs. 2012:











As Reported

-4.0%

-3.0%

5.1%

-5.1%

-2.8%

3.6%

-1.2%

-7.0%

0.0%

-1.7%


Acquisitions/Dispositions

0.0%

0.5%

0.0%

0.0%

0.2%

0.0%

0.0%

-1.4%

0.0%

0.0%


Integration impact (a)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-0.1%

0.0%

0.0%


Foreign currency impact

0.0%

0.0%

0.0%

-2.2%

-0.4%

2.4%

-4.2%

-9.7%

0.0%

-0.8%

Subtotal - internal business (b)

-4.0%

-3.5%

5.1%

-2.9%

-2.6%

1.2%

3.0%

4.2%

0.0%

-0.9%














      Volume (tonnage) (c)





-3.0%

3.2%

-5.8%

4.7%

0.0%

-1.6%


      Pricing/mix





0.4%

-2.0%

8.8%

-0.5%

0.0%

0.7%







































U.S.

U.S.

U.S.

North America

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

Other

America

Europe

America

Pacific

orate

dated

2013 operating profit 

$10

$106

$55

$52

$223

$36

$28

($3)

$976

$1,260

2012 operating profit

$123

$115

$52

$58

$348

$51

$32

$6

($434)

$3

% change - 2013 vs. 2012:











As Reported

-91.5%

-8.0%

5.7%

-12.5%

-36.1%

-30.1%

-13.0%

-150.2%

324.4%

42467.1%


Acquisitions/Dispositions

0.0%

0.7%

0.0%

0.0%

0.2%

0.0%

0.0%

48.0%

0.0%

0.6%


Integration impact (a)

0.0%

8.2%

0.0%

-0.4%

2.6%

-8.3%

0.2%

76.7%

0.2%

2.3%


Foreign currency impact

0.1%

0.0%

0.0%

-2.6%

-0.4%

-0.7%

-5.1%

-47.9%

0.4%

-1.7%


Mark-to-market (d)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

312.3%

42504.4%


Project K (e)

-77.8%

-15.9%

-4.0%

-14.2%

-35.6%

-36.4%

-3.4%

-370.3%

-70.4%

-47.3%


Underlying internal (f)

-13.8%

-1.0%

9.7%

4.7%

-2.9%

15.3%

-4.7%

143.3%

81.9%

8.8%

























(a)

Includes impact of integration costs associated with the Pringles acquisition.


(b)

Internal net sales growth for 2013 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.  In 2013 , asset returns exceeded expectations by $545 million and discount rates exceeded expectations by 65 basis points resulting in a favorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2013.  A portion of this mark-to-market adjustment was capitalized as inventoriable cost at the end of 2013.  In 2012, asset returns exceeded expectations by $211 million but discount rates fell almost 100 basis points resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2012.  A portion of the 2012 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2012.  This amount has been recorded in earnings in the first quarter of 2013.  In 2011, asset returns were lower than expected by $471 million and discount rates declined resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2011.  A portion of the 2011 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2011.  This amount was recorded in earnings in the first quarter of 2012.  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 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.


(f)

Underlying internal operating profit growth excludes the impact of foreign currency translation, pension plans and commodity contracts mark-to-market adjustments, Project K costs 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























Analysis of net sales and operating profit performance

















Year ended 2013 versus 2012

























U.S.

U.S.

U.S.

North

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

America Other

America

Europe

America

Pacific

orate

dated

2013 net sales

$3,465

$3,534

$1,202

$1,515

$9,716

$2,860

$1,195

$1,021

$0

$14,792

2012 net sales

$3,533

$3,400

$1,121

$1,485

$9,539

$2,527

$1,121

$1,010

$0

$14,197

% change - 2013 vs. 2012:











As Reported

-1.9%

4.0%

7.2%

2.0%

1.9%

13.2%

6.6%

1.1%

0.0%

4.2%


Acquisitions/Divestitures (a)

0.0%

6.9%

3.1%

1.3%

3.1%

10.3%

3.6%

6.4%

0.0%

4.6%


Integration impact (b)

0.0%

0.0%

0.0%

-0.1%

0.0%

0.0%

0.0%

-0.4%

0.0%

0.0%


Foreign currency impact

0.0%

0.0%

0.0%

-1.4%

-0.3%

1.2%

-2.5%

-7.9%

0.0%

-0.7%

Subtotal - internal business (c)

-1.9%

-2.9%

4.1%

2.2%

-0.9%

1.7%

5.5%

3.0%

0.0%

0.3%














      Volume (tonnage) (d)





-1.3%

1.2%

-1.7%

5.0%

0.0%

-0.5%


      Pricing/mix





0.4%

0.5%

7.2%

-2.0%

0.0%

0.8%







































U.S.

U.S.

U.S.

North

North


Latin

Asia

Corp-

Consoli-

(dollars in millions)

Morning Foods

Snacks

Specialty

America Other

America

Europe

America

Pacific

orate

dated

2013 operating profit 

$485

$447

$265

$275

$1,472

$256

$157

$60

$892

$2,837

2012 operating profit

$588

$476

$241

$265

$1,570

$261

$167

$85

($521)

$1,562

% change - 2013 vs. 2012:











As Reported

-17.4%

-6.1%

9.9%

3.6%

-6.2%

-2.0%

-5.8%

-29.9%

271.1%

81.6%


Acquisitions/Divestitures (a)

0.0%

7.2%

3.2%

1.1%

2.9%

6.3%

4.1%

7.9%

-6.3%

3.6%


Integration impact (b)

0.0%

1.4%

0.0%

-0.5%

0.4%

-3.1%

-0.1%

-7.2%

9.5%

0.7%


Foreign currency impact

0.0%

0.0%

0.0%

-1.7%

-0.3%

-0.7%

-7.2%

-11.1%

-0.7%

-1.4%


Mark-to-market (e)

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

250.2%

87.7%


Project K (f)

-17.1%

-4.1%

-1.0%

-3.3%

-8.3%

-7.1%

-2.7%

-27.9%

-43.2%

-10.3%


Underlying internal (g)

-0.3%

-10.6%

7.7%

8.0%

-0.9%

2.6%

0.1%

8.4%

61.6%

1.3%













(a)

Impact of results for the full-year ended December 28, 2013 and December 29, 2012 from the acquisition of Pringles and the divestiture of Navigable Foods.


(b)

Includes impact of integration costs associated with the Pringles acquisition.


(c)

Internal net sales growth for 2013 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. 


(d)

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


(e)

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.  In 2013 , asset returns exceeded expectations by $545 million and discount rates exceeded expectations by 65 basis points resulting in a favorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2013.  A portion of this mark-to-market adjustment was capitalized as inventoriable cost at the end of 2013.  In 2012, asset returns exceeded expectations by $211 million but discount rates fell almost 100 basis points resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2012.  A portion of the 2012 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2012.  This amount has been recorded in earnings in the first quarter of 2013.  In 2011, asset returns were lower than expected by $471 million and discount rates declined resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2011.  A portion of the 2011 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2011.  This amount was recorded in earnings in the first quarter of 2012.  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.


(f)

Costs incurred related 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.


(g)

Underlying internal operating profit growth excludes the impact of foreign currency translation, pension plan and commodity contracts mark-to-market adjustments, Project K costs 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






Project K*


















$ millions

Quarter ended December 28, 2013


Year ended December 28, 2013




Cost of

goods sold

Selling, general and

administrative

expense

Total


Cost of

goods sold

Selling, general and

administrative

expense

Total

2013










U.S. Morning Foods

$93

$2

$95


$97

$3

$100


U.S. Snacks

17

1

18


17

2

19


U.S. Specialty

-

2

2


-

3

3


North America Other

8

1

9


8

1

9


Europe

18

1

19


18

1

19


Latin America

(1)

2

1


1

3

4


Asia Pacific

21

2

23


21

3

24


Corporate

12

12

24


12

18

30



Total

$168

$23

$191


$174

$34

$208




















*

Costs incurred related 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.

 

Kellogg Company and Subsidiaries






Up-Front Costs*








$ millions






















Quarter ended December 28, 2013


Year ended December 28, 2013




Cost of

goods sold

Selling, general and

administrative

expense

Total


Cost of

goods sold

Selling, general and

administrative

expense

Total

2013










U.S. Morning Foods

$1

$1

$2


$4

$5

$9


U.S. Snacks

1

2

3


4

7

11


U.S. Specialty

1

(1)

-


2

-

2


North America Other

-

1

1


-

2

2


Europe

-

2

2


3

5

8


Latin America

-

1

1


-

1

1


Asia Pacific

2

-

2


8

-

8


Corporate

-

1

1


-

1

1



Total

$5

$7

$12


$21

$21

$42













Quarter ended December 29, 2012


Year ended December 29, 2012



Cost of

goods sold

Selling, general and

administrative

expense

Total


Cost of

goods sold

Selling, general and

administrative

expense

Total

2012










U.S. Morning Foods

$4

$1

$5


$11

$5

$16


U.S. Snacks

2

(2)

-


6

4

10


U.S. Specialty

-

-

-


-

1

1


North America Other

3

-

3


5

1

6


Europe

-

-

-


3

-

3


Latin America

1

1

2


1

1

2


Asia Pacific

17

-

17


17

1

18


Corporate

-

-

-


-

-

-



Total

$27

$0

$27


$43

$13

$56











2013 Variance - better(worse) than 2012








U.S. Morning Foods

$3

-

$3


$7

-

$7


U.S. Snacks

1

(4)

(3)


2

(3)

(1)


U.S. Specialty

(1)

1

-


(2)

1

(1)


North America Other

3

(1)

2


5

(1)

4


Europe

-

(2)

(2)


-

(5)

(5)


Latin America

1

-

1


1

-

1


Asia Pacific

15

-

15


9

1

10


Corporate

-

(1)

(1)


-

(1)

(1)



Total

$22

$(7)

$15


$22

$(8)

$14











* Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation. Up-front costs exclude Project K costs.









 

 

Kellogg Company and Subsidiaries










Transaction and Integration Costs*











$ millions





























Quarter ended December 28, 2013


Year ended December 28, 2013




Net Sales

Cost of

goods sold

Selling, general and

administrative

expense

Other

Income/Expense

Total


Net Sales

Cost of

goods sold

Selling, general and

administrative

expense

Other

Income/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

















Quarter ended December 29, 2012


Year ended December 29, 2012




Net Sales

Cost of

goods sold

Selling, general and

administrative

expense

Other

Income/Expense

Total


Net Sales

Cost of

goods sold

Selling, general and

administrative

expense

Other

Income/Expense

Total

2012














U.S. Snacks

-

-

$9

-

$9


-

-

$18

-

$18


North America Other

-

-

-

-

-


-

-

-

-

-


Europe

-

-

10

-

10


-

1

23

-

24


Latin America

-

-

1

-

1


-

-

1

-

1


Asia Pacific

1

1

2

-

4


1

1

3

-

5


Corporate

-

-

3

-

3


-

-

28

5

33



Total

$1

$1

$25

-

$27


$1

$2

$73

$5

$81















2013 Variance - better(worse) than 2012












U.S. Snacks

-

-

$8

-

$8


-

$(1)

$7

-

$6


North America Other

-

-

-

-

-


(1)

-

-

-

(1)


Europe

-

(6)

-

-

(6)


-

(12)

2

-

(10)


Latin America

-

-

1

-

1


-

-

-

-

-


Asia Pacific

1

1

2

-

4


(3)

-

(3)

-

(6)


Corporate

-

-

3

-

3


-

-

22

5

27



Total

$1

$(5)

$14

-

$10


$(4)

$(13)

$28

$5

$16





























* Transaction and integration costs are charges incurred by the Company as a direct result of the work performed for the acquisition of the Pringles business.  No transaction costs were incurred during the quarter and year-to-date periods ended December 28, 2013.

















 

Kellogg Company and Subsidiaries









Reconciliation of Non-GAAP Amounts - Reported Operating Profit








to Comparable Operating Profit
































Quarter ended December 28, 2013













U.S.

U.S.

U.S.

North





Kellogg

(millions)

Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$10

$106

$55

$52

$36

$28

$(3)

$976

$1,260


Mark-to-market(a)

-

-

-

-

-

-

-

1,006

1,006


Project K(b)

(95)

(18)

(2)

(9)

(19)

(1)

(23)

(24)

(191)

Underlying Operating Profit(c)

$105

$124

$57

$61

$55

$29

$20

$(6)

$445


Pringles integration costs

-

(1)

-

-

(16)

-

-

-

(17)

Comparable Operating Profit(d)

$105

$125

$57

$61

$71

$29

$20

($6)

$462






















Quarter ended December 29, 2012













U.S.

U.S.

U.S.

North





Kellogg

(millions)

Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$123

$115

$52

$58

$51

$32

$6

$(434)

$3


Mark-to-market(a)

-

-

-

-

-

-

-

(402)

(402)


Project K(b)

-

-

-

-

-

-

-

-

-

Underlying Operating Profit(c)

$123

$115

$52

$58

$51

$32

$6

$(32)

$405


Pringles integration costs

-

(9)

-

-

(10)

(1)

(4)

(3)

(27)

Comparable Operating Profit(d)

$123

$124

$52

$58

$61

$33

$10

$(29)

$432













(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.  In 2013 , asset returns exceeded expectations by $545 million and discount rates exceeded expectations by 65 basis points resulting in a favorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2013.  A portion of this mark-to-market adjustment was capitalized as inventoriable cost at the end of 2013.  In 2012, asset returns exceeded expectations by $211 million but discount rates fell almost 100 basis points resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2012.  A portion of the 2012 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2012.  This amount has been recorded in earnings in the first quarter of 2013.  In 2011, asset returns were lower than expected by $471 million and discount rates declined resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2011.  A portion of the 2011 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2011.  This amount was recorded in earnings in the first quarter of 2012.  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 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.













(c)

Underlying Operating Profit excludes the impact pension plans and commodity contracts mark-to-market adjustments and Project K costs.  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 quarter ended December 28, 2013 and December 29, 2012 includes postretirement benefit plan expense (income) of ($2) million and ($6) 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 Project K costs and the impact of integration costs related to the acquisition of the Pringles business. 


 

Kellogg Company and Subsidiaries








Reconciliation of Non-GAAP Amounts - Reported Operating Profit







to Comparable Operating Profit






























Year ended December 28, 2013













U.S.

U.S.

U.S.

North





Kellogg

(millions)

Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$485

$447

$265

$275

$256

$157

$60

$892

$2,837


Mark-to-market(a)

-

-

-

-

-

-

-

947

947


Project K(b)

(100)

(19)

(3)

(9)

(19)

(4)

(24)

(30)

(208)

Underlying Operating Profit(c)

$585

$466

$268

$284

$275

$161

$84

$(25)

$2,098


Pringles integration costs

-

(12)

-

(1)

(34)

(1)

(11)

(6)

(65)

Comparable Operating Profit(d)

$585

$478

$268

$285

$309

$162

$95

$(19)

$2,163






















Year ended December 29, 2012













U.S.

U.S.

U.S.

North





Kellogg

(millions)

Morning Foods

Snacks

Specialty

America Other

Europe

Latin America

Asia Pacific

Corporate

Consolidated












Reported Operating Profit

$588

$476

$241

$265

$261

$167

$85

$(521)

$1,562


Mark-to-market(a)

-

-

-

-

-

-

-

(452)

(452)


Project K(b)

-

-

-

-

-

-

-

-

-

Underlying Operating Profit(c)

$588

$476

$241

$265

$261

$167

$85

$(69)

$2,014


Pringles integration costs

-

(18)

-

-

(24)

(1)

(5)

(33)

(81)

Comparable Operating Profit(d)

$588

$494

$241

$265

$285

$168

$90

$(36)

$2,095













(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.  In 2013 , asset returns exceeded expectations by $545 million and discount rates exceeded expectations by 65 basis points resulting in a favorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2013.  A portion of this mark-to-market adjustment was capitalized as inventoriable cost at the end of 2013.  In 2012, asset returns exceeded expectations by $211 million but discount rates fell almost 100 basis points resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2012.  A portion of the 2012 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2012.  This amount has been recorded in earnings in the first quarter of 2013.  In 2011, asset returns were lower than expected by $471 million and discount rates declined resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2011.  A portion of the 2011 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2011.  This amount was recorded in earnings in the first quarter of 2012.  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 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.



(c)

Underlying Operating Profit excludes the impact pension plans and commodity contracts mark-to-market adjustments and Project K costs.  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 year ended December 28, 2013 and December 29, 2012 includes postretirement benefit plan expense (income) of ($12) million and ($20) 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 Project K costs 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



Year ended






December 28,

2013

December 29,

2012

Change vs.

prior year


December 28,

2013

December 29,

2012

Change vs.

prior year












Reported EPS

$2.24

$(0.09)

2588.9%


$4.94

$2.67

85.0%



Mark-to-market(a)

1.83

(0.74)

2855.6%


1.72

(0.85)

96.3%



Project K(b)

(0.39)

-

-289.8%


(0.42)

-

-14.7%


Underlying EPS(c)

$0.80

$0.65

23.1%


$3.64

$3.52

3.4%



Pringles Integration costs (net of one-time benefits)

(0.03)

(0.05)

4.5%


(0.13)

(0.09)

-1.0%


Comparable EPS(d)

$0.83

$0.70

18.6%


$3.77

$3.61

4.4%












(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.  In 2013 , asset returns exceeds expectations by $545 million and discount rates exceeded expectations by 65 basis points resulting in a favorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2013.  A portion of this mark-to-market adjustment was capitalized as inventoriable cost at the end of 2013.  In 2012, asset returns exceeded expectations by $211 million but discount rates fell almost 100 basis points resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2012.  A portion of the 2012 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2012.  This amount has been recorded in earnings in the first quarter of 2013.  In 2011, asset returns were lower than expected by $471 million and discount rates declined resulting in an unfavorable mark-to-market adjustment recorded in earnings in the fourth quarter of 2011.  A portion of the 2011 pension mark-to-market adjustment was capitalized as an inventoriable cost at the end of 2011.  This amount was recorded in earnings in the first quarter of 2012.  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 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.






(c)

Underlying EPS is a non-GAAP measure that excludes the impact of pension and commodity mark-to-market adjustments and Project K costs.





(d)

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 Project K costs, and the impact of integration costs net of one-time benefits related to the acquisition of the Pringles business.  One-time benefits in the first quarter of 2012 consisted of a gain on transaction-related hedging.  Second quarter 2012 net one-time benefits included foreign exchange and tax rate benefits which were partially offset by a loss on transaction-related hedging. 













Kellogg Company and Subsidiaries


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










Year ended





December 28, 2013








Reported Effective Tax Rate

30.4%




Mark-to-market (a)

1.9%




Project K (b)

0.2%



Underlying Reported Effective Tax Rate (c)

28.3%











(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 2013.


(b)

Costs incurred related to the execution of Project K, in general, were incurred in jurisdictions with tax rates lower than our effective tax rate during 2013.


(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



More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.