Third Quarter 2010 Earnings

Transcription

1 Kellogg Company Third Quarter 2010 Earnings Forward-Looking Statements This presentation contains, or incorporates by reference, forward-looking statements with projections concerning, among other things, the Company s strategy, and the Company s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words expects, believes, should, will, will deliver, anticipates, projects, estimates, or words or phrases of similar meaning. The Company s actual results or activities may differ materially from these predictions. The Company s future results could also be affected by a variety of factors, including the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; labor costs; disruptions or inefficiencies in supply chain; the availability of and interest rates on short-term and longterm financing; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; changes in consumer behavior and preferences; the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability; legal and regulatory factors; including changes in advertising and labeling laws and regulations; the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and other items. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them. 22

2 Overview Disappointing 2010 Understanding and addressing issues Regaining momentum in 2011 Confidence in the long term Regaining Momentum Playing our Game: Drive strong innovation Continued investment in advertising Add value to category 4 34

3 Summary of Financial Results ($ millions, except EPS) Q3 Third Quarter Internal / Currency- Neutral Growth YTD Year-to-Date Internal / Currency- Neutral Growth Net Sales $ 3,157-2% $ 9,537-2% Operating Profit $ 541-3% $ 1,661 1% Earnings Per Share $ % $ % Internal net sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. 55 Net Sales Components (year-over-year % change) Internal YOY Change - 2.5% 0.9% -1.1% -3.6% -3.4% Net Sales Volume / (Tonnage) Price/Mix Currency Acquisitions YTD -1.4% -2.4% 0.9% 0.1% 0% 66

4 Gross Profit Margin (gross profit dollars) Q Q YTD 2010 Margin 43.9% 43.4% 43.0% Gross profit as a % of net sales. 77 Advertising Investment (year-over-year % change, internal growth ) 9% 4% Mid single-digit 5% -3% Q Q Q FY 2010 Internal advertising growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. 88

5 Internal Operating Profit Growth by Area (year-over-year % change, internal growth ) Total Company North America 2% Latin America Asia- Pacific -3% -3% Europe -18% -17% YTD 1% flat 4% -9% -6% Internal operating profit growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. 99 Cash Flow (millions) $978 Q3 $443 $827 Q3 $381 Q2 $363 Q1 $172 Q2 $256 Q1 $190 Q3 YTD 2009 Q3 YTD 2010 Kellogg defines cash flow as cash from operating activities, less capital expenditures; see reconciliation to GAAP cash flow at the end of this presentation. 10

6 2010 Guidance Full-Year 2010 Internal Net Sales down approx. 1% Internal Operating Profit approx. flat On track to achieve over $1 billion in annual cost savings by year-end 2011 Mid single-digit internal advertising growth Earnings Per Share Tax rate of approximately 29% 4 to 5% currency-neutral basis Internal net sales, operating profit and advertising growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. 11 Foreign Exchange Impact on EPS 2009 Actual vs. Current Spot Market U.S. dollars per local currency Full-year spot rates impact on 2010 EPS from translational foreign exchange is unfavorable to 2009 by approximately ($0.02) 2009 Actual Current Spot UK Pound $1.56 $1.58 Euro $1.39 $1.39 Mexican Peso $0.07 $0.08 Canadian Dollar $0.88 $0.98 Australian Dollar $0.80 $ month average exchange rate Current spot as of October 26,

7 2011 Outlook Full-Year 2011 Outlook Internal Net Sales Low single-digit Internal Operating Profit Flat to down 2% On track to achieve over $1 billion in annual cost savings by year-end 2011 Internal advertising growth in line with sales growth Earnings Per Share Tax rate of approximately 30% Low single-digit currency-neutral basis Internal net sales, operating profit and advertising growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. 13 North America Net Sales (internal net sales growth, year-over-year% change) Total North America Retail Cereal 0% Frozen & Specialty Channels (d) Retail Snacks (c) -3% -6% -5% YTD -2% -6% 2% -6% Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. Includes U.S. and Canada retail cereal. (c) Includes biscuits, wholesome snacks, Pop-Tarts and fruit snacks. (d) Includes Frozen Foods, Food Away From Home and custom manufacturing. 14

8 North America Retail Cereal (internal net sales growth, year-over-year % change) 6% 6% 4% 2% 0% -13% Q1 Q2 Q3 Q4 Q1 Q2-6% Q Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. 15 North America Retail Snacks (internal net sales growth, year-over-year % change) 5% 5% 2% 3% 3% 1% 0.3% Q1 Q2 Q3 Q4 Q1 Q2 Q Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. 16

9 North America Retail Snacks (net sales, year-over-year % change) Toaster Pastries Net Sales Crackers Cookies Wholesome Snacks Total Retail Snacks Store-door sales. 17 North America Frozen & Specialty Channels (internal net sales growth, year-over-year % change) 6% 5% -3% -13% -3% -9% -5% Q1 Q2 Q3 Q4 Q Q Q3 Includes Frozen Foods, Food Away From Home and custom manufacturing. Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. 18

10 International Growth (internal net sales growth, year-over-year % change) 5% 2% -2% Total -5% Latin Asia International Europe America Pacific YTD flat -2% 4% 2% Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. 19 Innovation: First Half

11 Summary Difficult 2010 Pragmatic 2011 guidance Regain momentum Confident in long-term growth model 21 Appendix 1 Reconciliation of Kellogg-Defined Cash Flow to GAAP Cash Flow Year-to-date period ended October 2, October 3, (unaudited) Operating activities Net income $1,055 $1,032 Adjustments to reconcile net income to operating cash flows: Depreciation and amortization Deferred income taxes (53) (9) Other 116 (18) Postretirement benefit plan contributions (45) (93) Changes in operating assets and liabilities (259) 36 Net cash provided by operating activities 1,079 1,230 Less: Additions to properties (252) (252) Cash flow $827 $978 We use this non-gaap measure of cash flow to focus management and investors on the amount of cash available for share repurchases, dividend distributions, acquisition opportunities, and debt reduction. 22

12 Appendix 2 Reconciliation of 2010 and 2011 Reported Earnings per Share to Currency-Neutral Earnings per Share for Guidance 2009 Reported EPS $ Currency-Neutral EPS Guidance - % 4% to 5% 2010 Currency-Neutral EPS Guidance - $ $ 3.29 to $ 3.32 Estimated FX impact at Current Spot Rates $ (0.02) $ (0.02) 2010 Reported EPS Guidance $ 3.27 to $ Currency-Neutral EPS Guidance - % low single-digits We use this non-gaap measure to focus management and investors on local currency results, thereby providing visibility to the underlying trends of the company. Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. 23 Appendix 3a Analysis of nets sales and operating profit performance Third quarter of 2010 versus 2009 North Latin Asia Consoli- (dollars in millions) America Europe America Pacific Corporate dated 2010 net sales $ 2,130 $ 564 $ 247 $ 216 $ - $ 3, net sales $ 2,187 $ 631 $ 262 $ 197 $ - $ 3,277 % change vs. 2009: Volume (tonnage) -4.2% -4.9% -3.8% 11.1% % Pricing/mix 1.3% -.5% 8.4% -9.4% -.9% Subtotal - internal business -2.9% -5.4% 4.6% 1.7% % Foreign currency impact.3% -5.0% -10.1% 7.3% % Total change -2.6% -10.4% -5.5% 9.0% % North Latin Asia Consoli- (dollars in millions) America Europe America Pacific Corporate dated 2010 operating profit $ 404 $ 102 $ 34 $ 25 $ (24) $ operating profit $ 415 $ 105 $ 51 $ 28 $ (32) $ 567 % change vs. 2009: Internal business -2.9% 2.4% -18.2% -16.8% 20.7% -3.0% Foreign currency impact.3% -5.4% -14.0% 6.9% % Total change -2.6% -3.0% -32.2% -9.9% 20.7% -4.7% Includes Australia, Asia, and South Africa. We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments. 24

13 Appendix 3b Analysis of nets sales and operating profit performance Year-to-date 2010 versus 2009 North Latin Asia Consoli- (dollars in millions) America Europe America Pacific Corporate dated 2010 net sales $ 6,469 $ 1,730 $ 709 $ 629 $ - $ 9, net sales $ 6,574 $ 1,805 $ 750 $ 546 $ - $ 9,675 % change vs. 2009: Volume (tonnage) -2.8% -2.3% -3.7% 3.0% % Pricing/mix.5%.2% 7.3% -.9% -.9% Subtotal - internal business -2.3% -2.1% 3.6% 2.1% % Foreign currency impact.7% -2.0% -9.1% 13.0% -.1% Total change -1.6% -4.1% -5.5% 15.1% % North Latin Asia Consoli- (dollars in millions) America Europe America Pacific Corporate dated 2010 operating profit $ 1,261 $ 307 $ 126 $ 82 $ (115) $ 1, operating profit $ 1,244 $ 304 $ 157 $ 74 $ (130) $ 1,649 % change vs. 2009: Internal business.5% 4.3% -9.3% -5.7% 11.1%.9% Foreign currency impact.8% -3.3% -10.1% 17.0% - -.2% Total change 1.3% 1.0% -19.4% 11.3% 11.1%.7% Includes Australia, Asia, and South Africa. We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments. 25