Kellogg earnings, sales both ease 2%

by Eric Schroeder
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BATTLE CREEK, MICH. — Net income at the Kellogg Co. in the first quarter ended March 31 eased 2% to $358 million, equal to $1 per share on the common stock, down from $366 million, or $1 per share, in the same period a year ago. The most recent quarterly results included a $26 million pre-tax benefit from hedging activities associated with the pending acquisition of the Pringles business.

Operating profit also fell, declining 6.5% to $535 million from $572 million. Internal operating profit, which excludes the effects of foreign currency translation, declined by 6.1%. The decline was the result of lower-than-expected results in the European business and in some categories in the United States, high levels of commodity inflation, and the timing of 2012’s investment in the company’s continuing supply chain initiatives.

First-quarter net sales decreased 2% to $3,440 million from $3,485 million.

“While results in the first quarter were lower than we had planned due to weakness in Europe and certain other businesses, we are confident that we are taking the right actions and investing in the right places,” said John Bryant, president and chief executive officer of Kellogg.

Operating profit within the U.S. Morning Food & Kashi segment fell 12% to $159 million from $181 million, while sales in the segment eased 2% to $941 million from $958 million.

U.S. Snacks operating profit also was lower, falling to $118 million from $124 million. Sales in the segment rose 2% to $742 million from $725 million.

Kellogg scored a 9% gain in operating profit in its U.S. Specialty segment, as profit rose to $71 million from $65 million. Sales also were higher, increasing 8% to $348 million from $323 million.

Operating profit in the North America Other division was flat at $70 million, while sales rose to $368 million from $358 million.

First-quarter operating profit grew to $51 million from $48 million in Latin America and to $34 million from $31 million in Asia Pacific. First-quarter operating profit in Europe fell 23% to $78 million from $101 million.

Kellogg International sustained a 7% decline in first-quarter sales. Sales increased 3% in Latin America to $270 million from $261 million, but sales fell 13% in Europe to $538 million from $621 million, and they decreased 3% in Asia Pacific to $233 million from $239 million.

As previously announced, Kellogg lowered its guidance for internal net sales growth to a range between 2% and 3%. The company also said it now expects full-year internal operating profit will decline between 2% and 4%. Expectations for full-year, as-reported earnings per share have been lowered by approximately 2% to a range between $3.18 and $3.30 per share.

“Despite the difficult environment we faced in the first quarter, we remain committed to investment and optimistic about the strength of our brands and the categories in which we compete,” Mr. Bryant said. “We’re also very excited about adding the great Pringles brand to our family. The acquisition of the Pringles business will bring significant opportunity and only increases our confidence in the long-term potential of our business.”

The Kellogg Co. previously this year announced it planned to acquire the Pringles snack business from Procter & Gamble.

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