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Kellogg Co.

Posted On: 10/25/2000

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BATTLE CREEK, MI - Kellogg Co. has announced third-quarter 2000 results in line with consensus analyst estimates, and provided an update on its growth strategy.

For the third quarter ended Sept. 30, 2000, earnings per share were $0.45, up 7.1 percent from last year's $0.42. Net earnings were $181.9 million, up 6.5 percent from 1999's $170.8 million. Results exclude 1999 restructuring and disposition-related charges. Third-quarter net sales were $1.85 billion, down 1.2 percent from last year's $1.87 billion, and third-quarter volume was off 1.4 percent. However, excluding the effects of foreign exchange, acquisitions and divestitures, sales were up 1.1. percent and volume up 1. 3 percent.

"Despite several unusual challenges in the third quarter, we were able to post our sixth consecutive quarterly EPS increase," said Carlos M. Gutierrez, chairman and chief executive officer.

Earnings per share and net earnings were negatively affected by foreign exchange translations, rising energy prices, higher interest rates and an inventory write-off in Southeast Asia, offset partially by the benefit of U.S. tax credits. "We also faced a substantial increase in promotional activity by cereal competitors in the U.S.," said Gutierrez. "Nonetheless, we increased our U.S. cereal market share through improved execution and more efficient marketing spending."

For the first nine months of 2000, excluding charges, Kellogg's earnings per share were $1.26, up 8.6 percent from last year's $1.16, and net earnings were $509.2 million, up 8.5 percent from last year's $469.4 million. Nine-month net sales were even with last year at $5.40 billion, and volume was off by 1.2 percent. Excluding the effects of foreign exchange, acquisitions and divestitures, nine-month sales were up 2.0 percent and volume up 1.8 percent.

Including all charges, third quarter 1999 earnings per share were negative $0.08 on net earnings of negative $35.6 million, nine-month 1999 earnings per share were $.59 on net earnings of $237.4 million, and nine-month 2000 earnings per share were $1.22 on net earnings of $494.5 million.

With higher energy prices and interest rates, heightened competitive activity, and unfavorable foreign exchange translations continuing in the fourth quarter, the company may be challenged to match analysts' estimates for fourth-quarter earnings per share, Kellogg observed.

Gutierrez said that while the company has significantly improved its ability to compete over the past two years, it is time to seek growth more aggressively.

"We have been working to revitalize Kellogg, and among other steps, we've strengthened our management team, expanded our convenience foods business and improved customer relationships , returning Kellogg to steady earnings growth," he said. "We are now entering the next phase in the renewal of Kellogg Co. We need to simplify our current Kellogg business, prioritize its resources, and refuel it with a return to previous levels of marketing investment."

Gutierrez said Kellogg's need to prioritize will result in focusing more resources on the U.S. and its other core markets , the United Kingdom/Republic of Ireland, Mexico, Canada, and Australia/New Zealand. "In the U.S., our largest market, we will invest strongly in building our cereal brands, continue to expand our convenience foods business, and enhance our growth through acquisitions," he said. "This prioritization also includes setting more realistic short-term targets and improving the profitability of non-core markets."

Kellogg's initiatives should accelerate sales growth in 2001, but could limit 2001 EPS growth to a mid-single-digit rate, the company noted.

With annual sales of nearly $7 billion, Kellogg Co. is the world's leading producer of cereal and a major producer of convenience foods, including toaster pastries, cereal bars, frozen waffles, wholesome snacks, and meat alternatives. The company's brands include "Kellogg's," "Special K," "Rice Krispies," "Eggo," "Pop-Tarts," "Nutri-Grain," "Morningstar Farms" and "Kashi."