The FINANCIAL — Kellogg Company on May 5 announced currency-neutral comparable first-quarter results for net sales, operating profit, and earnings per share that were greater than the company’s expectations.
First quarter 2015 reported net sales decreased by 5.0 percent to $3.6 billion, primarily due to the effect of currency translation. Currency-neutral comparable net sales decreased by 0.3 percent over the same period; this result included growth in each of the international regions. First quarter 2015 reported operating profit was $384 million, a decline of 37.5 percent; this decrease was driven primarily by the impact that asset returns and changes in interest rates had on pension plans. The decline in currency-neutral comparable operating profit was largely the result of slightly lower net sales, according to Kellogg Company.
Reported earnings for the first quarter of 2015 were $227 million, or $0.64 per share, a decrease of 43 percent from the $1.12 per share reported in the first quarter of last year. This quarter’s reported earnings per share included negative impacts from mark-to-market of $0.13 per share and costs associated with the Project K efficiency and effectiveness program of $0.13 per share. In addition, reported results included $0.01 per share of integration costs related to the acquisition of Pringles and Bisco Misr and $0.07 of other costs. Excluding these items, comparable first quarter 2015 earnings were $0.98 per share, greater than the company’s expectations. This result included a negative impact of $0.06 per share from currency translation; comparable earnings per share excluding the impact of currencies would have been $1.04 per share.
“We were pleased to report improved sales trends in the first quarter. In fact, our results exceeded our expectations and we are on-track for the year,” said John Bryant, Kellogg Company’s chairman and chief executive officer. “We’ve made great progress with Project K and are reinvesting to drive profitable sales growth.”
North America
Net sales posted by Kellogg North America were $2.4 billion in the first quarter, a reported decrease of 3.7 percent; currency-neutral comparable net sales decreased by 2.8 percent. The U.S. Morning Foods segment posted a currency-neutral comparable net sales decline of 2.9 percent, which included improved trends in the Cereal business. Currency-neutral comparable net sales in the U.S. Snacks segment decreased by 1.1 percent, also reflecting an improvement in sales trends. The U.S. Specialty Channels segment posted a 2.5 percent decline in currency-neutral comparable net sales in the quarter due to a discrete item. The North America Other segment, which is now composed of the U.S. Frozen Foods, Kashi, and Canadian businesses, posted a 6.1 percent decrease in currency-neutral comparable net sales. Reported operating profit in North America decreased by 9.9 percent; currency-neutral comparable operating profit declined by 8.0 percent, largely as the result of lower sales.
International
Reported net sales decreased by 13.8 percent in Europe in the quarter; currency-neutral comparable net sales increased by 1.0 percent including double-digit currency-neutral comparable net sales growth for the Pringles business. In Latin America, reported net sales increased by 6.3 percent; currency-neutral comparable net sales increased by 15.7 percent, including broad-based growth across the region. Reported net sales in Asia Pacific decreased by 5.3 percent; currency-neutral comparable net sales increased by 4.0 percent due to good rates of growth in the Asian businesses.
Interest and Tax
Kellogg’s interest expense was $54 million in the first quarter. The comparable effective tax rate* in the first quarter of 2015 was 25.4 percent, lower than last year due to certain discrete items.
Cash flow
Cash flow, a non-GAAP measure defined as cash from operating activities less capital expenditures, was $12 million for the quarter. This year-over-year decline was primarily due to earnings results, the timing of an interest payment, and increased cash costs associated with Project K. The company continues to expect that cash flow for the full year will be approximately $1.0 billion. Kellogg repurchased $285 million of shares during the first quarter.
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