Le Lézard
Classified in: Business, Covid-19 virus
Subjects: ERN, CCA

Kellogg Company Reports Strong Second Quarter 2020 Results, Raises Full-Year Outlook


BATTLE CREEK, Mich., July 30, 2020 /PRNewswire/ -- Kellogg Company (NYSE: K) today announced second quarter 2020 results and raised its full-year financial guidance.

Highlights:

"First, I want to acknowledge and thank our colleagues around the world, for their exceptional work, agility, and open dialogue during what have been truly unprecedented circumstances," said Steve Cahillane, Kellogg Company's Chairman and Chief Executive Officer.  "Our organization has risen to the challenges of keeping each other safe, supplying much-needed food to the marketplace, and giving back to our communities in a time of need.  Importantly, we improved our category share performance and delivered financial results that exceeded  our expectations."

Mr. Cahillane added, "Our first half performance puts us in the position to substantially increase our investment in the business during the second half, while still delivering more net sales, operating profit, earnings per share, and cash flow for the full year than we had originally planned.  This second-half investment is intended to bolster more brands in our portfolio, hone important capabilities, and enhance our competitive position, so that we emerge from this crisis even stronger."

Guidance and goals expressed in this press release are on a currency-neutral basis, and adjusted to exclude restructuring charges, mark-to-market adjustments of pensions (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded) and various financial instruments, and other costs impacting comparability. Organic basis also excludes acquisitions, divestitures, and differences in shipping days. Expected net sales, margins, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. Please refer to the "Non-GAAP Financial Measures" section included later in this press release for a further discussion of our use of non-GAAP measures, including quantification of known expected adjustment items. The company will use the term "low single digit" to refer to percent changes of up to 3%, "mid single-digit" to refer to percent changes between 4% and 6%, "high single-digit" to refer to percent changes between 7% up to 10%, and "double-digit" to refer to percent changes of 10% or more.

Financial Summary:


Quarter ended


Year-to-date period ended

(millions, except per share data)


June 27, 2020


June 29, 2019


%
Change


June 27, 2020


June 29, 2019


%
Change

Reported Net Sales


$

3,465



$

3,461



0.1%



$

6,877



$

6,983



(1.5)%


Organic Net Sales *


$

3,569



$

3,268



9.2%



$

7,033



$

6,476



8.6%















Reported Operating Profit


$

506



$

397



27.3%



$

966



$

778



24.1%


Adjusted Operating Profit *


$

562



$

452



24.2%



$

1,001



$

917



9.1%


Currency-Neutral Adjusted Operating Profit *


$

573



$

452



26.7%



$

1,018



$

917



11.0%















Reported Diluted Earnings Per Share


$

1.02



$

0.84



21.4%



$

2.02



$

1.66



21.7%


Adjusted Diluted Earnings Per Share *


$

1.24



$

0.99



25.3%



$

2.22



$

2.00



11.0%


Currency-Neutral Adjusted Diluted Earnings Per Share *


$

1.26



$

0.99



27.3%



$

2.26



$

2.00



13.0%


 

* Non-GAAP financial measure. See "Non-GAAP Financial Measures" section and "Reconciliation of Non-GAAP Amounts" tables within this release for important information regarding these measures.

 

Second Quarter Consolidated Results

Kellogg's second quarter 2020 GAAP (or "reported") net sales were flat year on year, as the absence of businesses divested last year and adverse foreign currency translation were more than offset by strong organic growth in the remaining businesses.  The July, 2019, divestiture, which included the Company's cookies, fruit snacks, pie crusts, and ice cream cones businesses, pulled down net sales by over 6%.  Adverse currency translation negatively impacted net sales by 3%.  Amidst the COVID-19 crisis, demand for packaged foods for at-home consumption remained elevated for longer than anticipated.  This drove higher sales of the Company's products in retail channels, more than offsetting a related decline in foods sold in away-from-home channels.  On an organic basis, which excludes the impact of divestiture and currency, the Company's net sales increased by over 9%.

Through the first six months, reported net sales decreased by less than 2% largely due to the absence of results from the businesses divested in July, 2019, and adverse currency translation whose impacts were 8% and 2%, respectively.  On an organic basis, which excludes the impact of the divestiture and currency, net sales increased by nearly 9%, as consumption of at-home foods increased across the portfolio in response to various stay at home orders due to the COVID-19 pandemic, more than offsetting a related decline in away-from-home food sales.

Reported operating profit in the second quarter increased by approximately 27% versus the year-ago quarter due to higher net sales, operating leverage, and investment delayed to the second half.  These factors more than offset the absence of results from the divested businesses, a negative swing in mark-to-market items, and adverse currency translation.  On an adjusted basis, which excludes mark-to-market and other charges, operating profit increased by over 24%.  Excluding currency translation, adjusted operating profit increased by approximately 27%. 

Through the first six months, reported operating profit increased by 24% primarily due to lower one-time charges as well as significantly higher net sales and operating leverage that more than offset the absence of results from the divested businesses and adverse currency translation.  On an adjusted basis, operating profit increased by 9%.  On a currency-neutral basis, adjusted operating profit increased 11%.

Reported earnings per share increased by approximately 21% from the prior-year quarter as higher operating profit and lower one-time charges more than offset a higher effective tax rate and unfavorable mark-to-market charges.  On an adjusted basis, which excludes mark-to-market and one time charges, earnings per share increased 25%.  On a currency-neutral basis, adjusted earnings per share increased by approximately 27%.

Through the first six months, reported earnings per share increased by nearly 22% as higher operating profit and lower one-time charges more than offset the absence of results from the divested businesses, unfavorable mark-to-market charges, and a higher effective tax rate.  On an adjusted basis, which excludes mark-to-market and one time charges, earnings per share improved 11%.  On a currency-neutral basis, adjusted earnings per share increased by 13%.

Year-to-date net cash provided by operating activities was $971 million, increasing significantly year on year due to higher net income, reduced cash outlays for restructurings, and effective core working capital management.  Year-to-date capital expenditure decreased year on year, reflecting delays to the second half due to the pandemic.  As a result, cash flow, defined as net cash provided by operating activities less capital expenditure, was $753 million through the end of the second quarter, up significantly year on year.

Second Quarter Business Performance

Please refer to the segment tables in the back of this document.

To ensure the health and well being of employees during the pandemic, Kellogg Company continued to invest in overtime pay and in safety and sanitation supplies and protocols in manufacturing facilities, distribution centers, and across the sales organization, while continuing travel and meetings restrictions amidst work-from-home policies.  To keep up with the significantly  increased demand for its products amidst stay-at-home guidelines around the world, the Company increased production, focusing on fewer items, and investing in its employees, warehousing labor, and transportation capacity.  And, in support of the Company's commitment to support its communities through the pandemic, the Company and its charitable funds have now donated almost $15 million in cash and food since the crisis began.

Kellogg North America's reported net sales in the second quarter increased by 1%, as the absence of results of businesses divested in late July, 2019, was more than offset by strong growth in the remaining businesses.  Amidst the COVID-19 crisis, demand for packaged foods for at-home consumption remained elevated for longer than anticipated.  This drove higher sales of the Company's products in retail channels, more than offsetting a related decline in foods sold in away-from-home channels.  On an organic basis, net sales grew 11%.  Kellogg North America's reported operating profit increased 44%, as higher sales, operating leverage, delayed investment, and a decrease in one-time charges more than offset the absence of results from the divested businesses and incremental costs related to safety and increased production and distribution related to the crisis.  On a currency-neutral adjusted basis, which excludes mark-to-market and one-time charges, operating profit improved by approximately 23%, as the divestiture impact was more than offset by growth in the remaining business.

Kellogg Europe recorded a 1% increase in reported net sales, which included negative currency translation of over 3%.  On an organic basis, net sales increased by 4%, due to elevated demand for cereal across the region during the pandemic.  Strong sales of cereal more than offset an expected decline in snacks, related to reduced demand for on-the-go foods and pack-formats, slowing sales amidst economic softness in Russia, and marketing programs for Pringles that had to be revised due to the cancellation of a major sporting event.  Kellogg Europe's operating profit increased 157% on a reported basis, due to a reduction in one-time charges, higher net sales, and brand investment that was delayed to the second half because of the pandemic.  On a currency-neutral adjusted basis, operating profit increased by 35%.

Kellogg Latin America's reported net sales declined 7%, due to negative currency translation of 20% as currencies in the region declined versus the U.S. dollar.  On an organic basis, net sales increased 14%, as cereal sales were lifted by strong commercial execution and pandemic-related accelerations in modern trade outlets across the region.  This more than offset a decline in snacks sales, due to shut-downs of high-frequency stores and diminished on-the-go snacking occasions during the pandemic.  Reported operating profit increased by 77% year on year, as the benefit of higher organic net sales and delayed investment more than offset the impact of adverse currency translation.  On a currency-neutral adjusted basis, operating profit increased by 89%.

Kellogg Asia Pacific, Middle East and Africa ("AMEA") reported net sales declined by 1%, which included negative currency translation of nearly 6%.  On an organic basis, net sales increased by 5% year on year, as sustained growth in cereal and Multipro, the distributor portion of Kellogg's business in Nigeria, more than offset lower sales of snacks due to pandemic-related disruptions and slowing economies in certain markets of Asia, Africa, and the Middle East.  Reported operating profit in the quarter declined by 14%, as higher one-time charges and adverse currency translation more than offset the benefit of higher organic net sales and delayed investment.  On a currency-neutral adjusted basis, operating profit grew 4%.

Kellogg Raises Full-Year Financial Guidance

Kellogg Company raised its full-year financial guidance, reflecting sales and profit over-delivery in the first half of the year.  The Company has made certain assumptions about the second half amidst an uncertain environment.  Notably, the Company assumes at-home consumption growth will moderate to normalized levels by the fourth quarter, with away-from-home demand taking longer to recover, and emerging markets feeling the impact of slowing economies.  In addition, the Company expects to sustain direct costs around safety, sanitation, and labor, and has shifted substantial brand investment into the second half.

Specifically, based on these assumptions, the Company's revised guidance ranges are:

Excluded from this guidance are any significant supply chain or other market disruptions related to the pandemic or global economy.

Conference Call / Webcast

Kellogg will host a conference call to discuss results and outlook on Thursday, July 30, 2020 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 (855) 209-8258 in the U.S., and (412) 542-4104 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Information regarding the rebroadcast is available at http://investor.kelloggs.com.

About Kellogg Company

At Kellogg Company (NYSE: K), we strive to enrich and delight the world through foods and brands that matter. Our beloved brands include Pringles®, Cheez-It®, Special K®, Kellogg's Frosted Flakes®, Pop-Tarts®, Kellogg's Corn Flakes®, Rice Krispies®, Eggo®, Mini-Wheats®, Kashi®, RXBAR® and more. Net sales in 2019 were approximately $13.6 billion, comprised principally of snacks and convenience foods like cereal and frozen foods. Kellogg brands are beloved in markets around the world. We are also a company with Heart & Soul, committed to creating Better Days for 3 billion people by the end of 2030 through our Kellogg's® Better Days global purpose platform. Visit www.KelloggCompany.com or www.OpenforBreakfast.com.

Non-GAAP Financial Measures

This filing includes non-GAAP financial measures that we provide to management and investors that exclude certain items that we do not consider part of on-going operations. Items excluded from our non-GAAP financial measures are discussed in the "Significant items impacting comparability" section of this filing. Our management team consistently utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions, including incentive compensation. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors' understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.

Non-GAAP financial measures used include currency-neutral and organic net sales, adjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted EPS, currency-neutral adjusted gross profit, currency-neutral adjusted gross margin, adjusted other income (expense), adjusted effective income tax rate, net debt and cash flow. We determine currency-neutral results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. These non-GAAP financial measures may not be comparable to similar measures used by other companies.

These measures have not been calculated in accordance with GAAP and should not be viewed as a substitute for GAAP reporting measures.

Forward-looking guidance for organic net sales, currency-neutral adjusted operating profit, currency-neutral diluted EPS, and cash flow is included in this press release. Guidance for organic net sales excludes the impact of foreign currency translation, acquisitions, divestitures, and differences in shipping days. Guidance for operating profit excludes the impact of costs related to restructuring programs, mark-to-market adjustments (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), multi-employer pension plan withdrawal liabilities, and other items that could affect comparability, and foreign currency translation. Guidance for earnings per share excludes the impact of costs related to restructuring programs, mark-to-market adjustments (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), multi-employer pension plan withdrawal liabilities, the gain on the divestiture of selected cookies fruit snacks, pie crusts, and ice cream cone businesses, and other items that could affect comparability, and foreign currency translation. We have provided these non-GAAP measures for future guidance for the same reasons that were outlined above for historical non-GAAP measures.

We are unable to reasonably estimate the potential full-year financial impact of mark-to-market adjustments because these impacts are dependent on future changes in market conditions (interest rates, return on assets, and commodity prices). Similarly, because of volatility in foreign exchange rates and shifts in country mix of our international earnings, we are unable to reasonably estimate the potential full-year financial impact of foreign currency translation. 

As a result, these impacts are not included in the guidance provided. Therefore, we are unable to provide a full reconciliation of these non-GAAP measures used in our guidance without unreasonable effort as certain information necessary to calculate such measure on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.

See the table below that outlines the projected impact of certain other items that are excluded from non-GAAP guidance for 2020:

Impact of certain items excluded from Non-GAAP guidance:

Net Sales

Operating Profit

Earnings Per Share

Business and portfolio realignment (pre-tax)


~$60-$70M

~$0.17-$0.20

Income tax impact applicable to adjustments, net**



~$0.04-$0.05

Currency-neutral adjusted guidance*

2-3%

~(1)%

~(1)%

Absence of results from divested businesses

~4%



53rd Week

(1)-(2)%



Organic guidance*

~5%



 

* 2020 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.  These items for 2020 include impacts of mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts. The Company is providing quantification of known adjustment items where available.

 

** Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.

 

Reconciliation of Non-GAAP amounts - Cash Flow Guidance


(billions)



Full Year 2020

Net cash provided by (used in) operating activities

~$1.6

Additions to properties

 ~$(0.6)

Cash Flow

~$1.0

 

Forward-Looking Statements Disclosure

This news release contains, or incorporates by reference, "forward-looking statements" with projections concerning, among other things, the Company's restructuring programs, the integration of acquired businesses, 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, return on invested capital (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 be affected by a variety of other factors, including uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions of the COVID-19 outbreak, the current, and uncertain future, impact of the COVID-19 outbreak on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), and cash flows and liquidity, the expected benefits and costs of the divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts, and ice-cream cones businesses of the Company, the risk that disruptions from the divestiture will divert management's focus or harm the Company's business, risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects, risks associated with the Company's provision of transition services to the divested businesses post-closing, the ability to implement restructurings as planned, whether the expected amount of costs associated with restructurings will differ from forecasts, whether the Company will be able to realize the anticipated benefits from restructurings in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions 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, transportation costs, 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.

Additional information concerning these and other factors can be found in the Company's filings with the Securities and Exchange Commission, including the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.

[Kellogg Company Financial News] [K-FIN] [K-ER]

 

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)

 



Quarter ended


Year-to-date period ended

(Results are unaudited)


June 27,
2020


June 29,
2019


June 27,
2020


June 29,
2019

Net sales


$

3,465



$

3,461



$

6,877



$

6,983


Cost of goods sold


2,268



2,275



4,536



4,690


Selling, general and administrative expense


691



789



1,375



1,515


Operating profit


506



397



966



778


Interest expense


69



75



133



149


Other income (expense), net


30



45



79



97


Income before income taxes


467



367



912



726


Income taxes


109



74



203



146


Earnings (loss) from unconsolidated entities


(4)



(1)



(5)



(3)


Net income


354



292



704



577


Net income attributable to noncontrolling interests


3



6



6



9


Net income attributable to Kellogg Company


$

351



$

286



$

698



$

568


Per share amounts:









Basic earnings


$

1.02



$

0.84



$

2.04



$

1.66


Diluted earnings


$

1.02



$

0.84



$

2.02



$

1.66


Average shares outstanding:









Basic


343



340



342



341


Diluted


345



341



345



342


Actual shares outstanding at period end






343


341

 

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions) 



Year-to-date period ended

(unaudited)


June 27,
2020


June 29,
2019

Operating activities





Net income


$

704



$

577


Adjustments to reconcile net income to operating cash flows:





Depreciation and amortization


234



243


Postretirement benefit plan expense (benefit)


(58)



(65)


Deferred income taxes


23



23


Stock compensation


37



29


Other


(17)



1


Postretirement benefit plan contributions


(12)



(12)


Changes in operating assets and liabilities, net of acquisitions:





      Trade receivables


(165)



(239)


      Inventories


(33)



(6)


      Accounts payable


105



29


      All other current assets and liabilities


153



(60)


Net cash provided by (used in) operating activities


971



520


Investing activities





Additions to properties


(218)



(294)


Purchase of marketable securities


(200)



?


Acquisitions, net of cash acquired


?



(8)


Acquisition of cost method investments


(4)



?


Purchases of available for sale securities


(70)



(16)


Sales of available for sale securities


7



16


Other


(30)



(25)


Net cash provided by (used in) investing activities


(515)



(327)


Financing activities





Net issuances (reductions) of notes payable


13



391


Issuances of long-term debt


554



28


Reductions of long-term debt


(40)



?


Net issuances of common stock


60



12


Common stock repurchases


?



(220)


Cash dividends


(390)



(380)


Collateral received on derivative instruments


38



?


Other


(1)



(8)


Net cash provided by (used in) financing activities


234



(177)


Effect of exchange rate changes on cash and cash equivalents


(40)



3


Increase (decrease) in cash and cash equivalents


650



19


Cash and cash equivalents at beginning of period


397



321


Cash and cash equivalents at end of period


$

1,047



$

340







 

Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)



June 27,
2020


December 28,
2019



(unaudited)


*

Current assets





Cash and cash equivalents


$

1,047



$

397


Marketable securities


200



?


Accounts receivable, net


1,692



1,576


Inventories


1,230



1,226


Other current assets


323



232


Total current assets


4,492



3,431


Property, net


3,436



3,612


Operating lease right-of-use assets


662



541


Goodwill


5,768



5,861


Other intangibles, net


2,486



2,576


Investments in unconsolidated entities


399



404


Other assets


1,308



1,139


Total assets


$

18,551



$

17,564


Current liabilities





Current maturities of long-term debt


$

1,396



$

620


Notes payable


121



107


Accounts payable


2,393



2,387


Current operating lease liabilities


115



114


Accrued advertising and promotion


694



641


Other current liabilities


1,137



909


Total current liabilities


5,856



4,778


Long-term debt


6,929



7,195


Operating lease liabilities


532



433


Deferred income taxes


597



596


Pension liability


697



705


Other liabilities


534



543


Commitments and contingencies





Equity





Common stock, $.25 par value


105



105


Capital in excess of par value


929



921


Retained earnings


8,166



7,859


Treasury stock, at cost


(4,613)



(4,690)


Accumulated other comprehensive income (loss)


(1,717)



(1,448)


Total Kellogg Company equity


2,870



2,747


Noncontrolling interests


536



567


Total equity


3,406



3,314


Total liabilities and equity


$

18,551



$

17,564


 * Condensed from audited financial statements.

 

Kellogg Company and Subsidiaries
Adjustments to Reconcile Reported Results to Currency-Neutral Adjusted Results
(millions, except per share data)


Quarter ended June 27, 2020

(Results are unaudited)

Cost of goods sold

Selling, general and administrative expense

Operating profit

Other income (expense)

Income taxes

Net income (loss) attributable to Kellogg

Per share amount: Diluted

Mark-to-market (pre-tax)

$

43


$

?


$

(43)


$

(43)


$

?


$

(86)


$

(0.25)


Business and portfolio realignment (pre-tax)

4


13


(17)


?


?


(17)


(0.05)


Multi-employer pension plan withdrawal (pre-tax)

(5)


?


5


?


?


5


0.01


Income tax impact applicable to adjustments, net*

?


?


?


?


(23)


23


0.07


Foreign currency impact

(71)


(21)


(11)


1


(1)


(9)


(0.02)


Adjustments to adjusted basis

$

(29)


$

(8)


$

(67)


$

(42)


$

(24)


$

(84)


$

(0.24)











Quarter ended June 29, 2019

(Results are unaudited)

Cost of goods sold

Selling, general and administrative expense

Operating profit

Other income (expense)

Income taxes

Net income (loss) attributable to Kellogg

Per share amount: Diluted

Mark-to-market (pre-tax)

$

(47)


$

1


$

46


$

(11)


$

?


$

35


$

0.10


Project K (pre-tax)

11


4


(15)


?


?


(15)


(0.05)


Brexit impacts (pre-tax)

3


?


(3)


?


?


(3)


(0.01)


Business and portfolio realignment (pre-tax)

4


79


(83)


?


?


(83)


(0.24)


Income tax impact applicable to adjustments, net*

?


?


?


?


(15)


15


0.05


Adjustments to adjusted basis

$

(29)


$

84


$

(55)


$

(11)


$

(15)


$

(51)


$

(0.15)


Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
*Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.

 


Year-to-date period ended June 27, 2020

(Results are unaudited)

Cost of goods sold

Selling, general and administrative expense

Operating profit

Other income (expense)

Income taxes

Net income (loss) attributable to Kellogg

Per share amount: Diluted

Mark-to-market (pre-tax)

$

21


$

(4)


$

(17)


$

(57)


$

?


$

(74)


$

(0.21)


Business and portfolio realignment (pre-tax)

4


19


(23)


?


?


(23)


(0.07)


Multi-employer pension plan withdrawal (pre-tax)

(5)


?


5


?


?


5


0.01


Income tax impact applicable to adjustments, net*

?


?


?


?


(23)


23


0.07


Foreign currency impact

(106)


(32)


(17)


?


(3)


(13)


(0.04)


Adjustments to adjusted basis

$

(86)


$

(18)


$

(52)


$

(57)


$

(26)


$

(82)


$

(0.24)











Year-to-date period ended June 29, 2019

(Results are unaudited)

Cost of goods sold

Selling, general and administrative expense

Operating profit

Other income (expense)

Income taxes

Net income (loss) attributable to Kellogg

Per share amount: Diluted

Mark-to-market (pre-tax)

$

(5)


$

1


$

4


$

(10)


$

?


$

(6)


$

(0.02)


Project K (pre-tax)

17


6


(23)


?


?


(23)


(0.07)


Brexit impacts (pre-tax)

6


?


(6)


?


?


(6)


(0.02)


Business and portfolio realignment (pre-tax)

8


106


(114)


?


?


(114)


(0.33)


Income tax impact applicable to adjustments, net*

?


?


?


?


(34)


34


0.10


Adjustments to adjusted basis

$

26


$

113


$

(139)


$

(10)


$

(34)


$

(116)


$

(0.34)


Note: Tables may not foot due to rounding.For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
*Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Net Sales to Organic Net Sales


Quarter ended June 27, 2020













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported net sales


$

2,167



$

546



$

223



$

529



$

?



$

3,465


Foreign currency impact on total business (inc)/dec


(6)



(18)



(48)



(31)



?



(103)


Organic net sales


$

2,173



$

564



$

271



$

560



$

?



$

3,569















Quarter ended June 29, 2019













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported net sales


$

2,148



$

541



$

239



$

533



$

?



$

3,461


Divestitures


191



?



2



?



?



194


Organic net sales


$

1,956



$

542



$

237



$

533



$

?



$

3,268















% change - 2020 vs. 2019:













Reported growth


0.9

%


0.8

%


(6.9)

%


(0.7)

%


?

%


0.1

%

Foreign currency impact on total business (inc)/dec


(0.3)

%


(3.3)

%


(20.0)

%


(5.8)

%


?

%


(3.0)

%

Currency-neutral growth


1.2

%


4.1

%


13.1

%


5.1

%


?

%


3.1

%

Divestitures


(9.9)

%


?

%


(1.2)

%


?

%


?

%


(6.1)

%

Organic growth


11.1

%


4.1

%


14.3

%


5.1

%


?

%


9.2

%

Volume (tonnage)


13.0

%


8.7

%


11.4

%


5.8

%


?

%


10.3

%

Pricing/mix


(1.9)

%


(4.6)

%


2.9

%


(0.7)

%


?

%


(1.1)

%

Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Net Sales to Organic Net Sales


Year-to-date period ended June 27, 2020













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported net sales


$

4,264



$

1,072



$

450



$

1,091



$

?



$

6,877


Foreign currency impact on total business (inc)/dec


(8)



(31)



(68)



(48)



?



(156)


Organic net sales


$

4,272



$

1,103



$

518



$

1,139



$

?



$

7,033















Year-to-date period ended June 29, 2019













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported net sales


$

4,437



$

1,038



$

464



$

1,044



$

?



$

6,983


Divestitures


502



?



5



?



?



507


Organic net sales


$

3,935



$

1,038



$

460



$

1,044



$

?



$

6,476















% change - 2020 vs. 2019:













Reported growth


(3.9)

%


3.3

%


(3.2)

%


4.5

%


?

%


(1.5)

%

Foreign currency impact on total business (inc)/dec


(0.2)

%


(3.0)

%


(14.6)

%


(4.6)

%


?

%


(2.2)

%

Currency-neutral growth


(3.7)

%


6.3

%


11.4

%


9.1

%


?

%


0.7

%

Divestitures


(12.3)

%


?

%


(1.2)

%


?

%


?

%


(7.9)

%

Organic growth


8.6

%


6.3

%


12.6

%


9.1

%


?

%


8.6

%

Volume (tonnage)


8.9

%


9.0

%


10.8

%


9.8

%


?

%


9.4

%

Pricing/mix


(0.3)

%


(2.7)

%


1.8

%


(0.7)

%


?

%


(0.8)

%

Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Gross Profit to Currency-Neutral Adjusted Gross Profit



Quarter ended


Year-to-date period ended



June 27,
2020


June 29,
2019


June 27,
2020


June 29,
2019

Reported gross profit


$

1,197



$

1,186



$

2,341



$

2,293


Mark-to-market


(43)



47



(21)



5


Project K


?



(11)



?



(17)


Brexit impacts


?



(3)



?



(6)


Business and portfolio realignment


(4)



(4)



(4)



(8)


Multi-employer pension plan withdrawal


5



?



5



?


Foreign currency impact


(32)



?



(50)



?


Currency-neutral adjusted gross profit


$

1,271



$

1,157



2,411



$

2,319


Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Gross Margin to Currency-Neutral Adjusted Gross Margin



Quarter ended


Year-to-date period ended



June 27,
2020


June 29,
2019


June 27,
2020


June 29,
2019

Reported gross margin


34.5

%


34.3

%


34.0

%


32.8

%

Mark-to-market


(1.3)

%


1.4

%


(0.3)

%


?

%

Project K


?

%


(0.3)

%


?

%


(0.2)

%

Brexit impacts


?

%


(0.1)

%


?

%


(0.1)

%

Business and portfolio realignment


(0.1)

%


(0.1)

%


(0.1)

%


(0.1)

%

Multi-employer pension plan withdrawal


0.1

%


?

%


0.1

%


?

%

Foreign currency impact


0.2

%


?

%


?

%


?

%

Currency-neutral adjusted gross margin


35.6

%


33.4

%


34.3

%


33.2

%

Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Adjusted Operating Profit


Quarter ended June 27, 2020













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported operating profit


$

464



$

92



$

31



$

38



$

(119)



$

506


Mark-to-market


?



?



?



?



(43)



(43)


Business and portfolio realignment


?



(1)



(4)



(10)



(1)



(17)


Multi-employer pension plan withdrawal


5



?



?



?



?



5


Adjusted operating profit


$

459



$

94



$

35



$

48



$

(75)



$

562


Foreign currency impact


(1)



(3)



(6)



(3)



1



(11)


Currency-neutral adjusted operating profit


$

460



$

97



$

42



$

51



$

(76)



$

573















Quarter ended June 29, 2019













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported operating profit


$

322



$

36



$

17



$

45



$

(23)



$

397


Mark-to-market


?



?



?



?



46



46


Project K


(10)



?



(2)



(3)



?



(15)


Brexit impacts


?



(3)



?



?



?



(3)


Business and portfolio realignment


(42)



(32)



(2)



(2)



(5)



(83)


Adjusted operating profit


$

374



$

72



$

22



$

49



$

(64)



$

452















% change - 2020 vs. 2019:













Reported growth


44.2

%


156.6

%


77.1

%


(13.7)

%


(445.3)

%


27.3

%

Mark-to-market


?

%


?

%


?

%


?

%


(434.2)

%


(29.2)

%

Project K


4.5

%


3.5

%


21.7

%


4.6

%


0.4

%


6.8

%

Brexit impacts


?

%


17.1

%


?

%


?

%


?

%


1.1

%

Business and portfolio realignment


15.5

%


104.9

%


(5.3)

%


(16.7)

%


6.1

%


23.4

%

Multi-employer pension plan withdrawal


1.2

%


?

%


?

%


?

%


?

%


1.0

%

Adjusted growth


23.0

%


31.1

%


60.7

%


(1.6)

%


(17.6)

%


24.2

%

Foreign currency impact


(0.2)

%


(4.1)

%


(28.7)

%


(5.3)

%


1.7

%


(2.5)

%

Currency-neutral adjusted growth


23.2

%


35.2

%


89.4

%


3.7

%


(19.3)

%


26.7

%

Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Operating Profit to Currency-Neutral Adjusted Operating Profit


Year-to-date period ended June 27, 2020













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported operating profit


$

830



$

162



$

53



$

84



$

(163)



$

966


Mark-to-market


?



?



?



?



(17)



(17)


Business and portfolio realignment


?



(2)



(4)



(12)



(4)



(23)


Multi-employer pension plan withdrawal


5



?



?



?



?



5


Adjusted operating profit


$

825



$

164



$

57



$

96



$

(142)



$

1,001


Foreign currency impact


(1)



(4)



(8)



(5)



1



(17)


Currency-neutral adjusted operating profit


$

826



$

169



$

65



$

102



$

(143)



$

1,018















Year-to-date period ended June 29, 2019













(millions)


North America


Europe


Latin
America


AMEA


Corporate


Kellogg
Consolidated

Reported operating profit


$

702



$

96



$

38



$

92



$

(150)



$

778


Mark-to-market


?



?



?



?



4



4


Project K


(14)



(1)



(4)



(4)



?



(23)


Brexit impacts


?



(6)



?



?



?



(6)


Business and portfolio realignment


(53)



(36)



(2)



(2)



(21)



(114)


Adjusted operating profit


$

769



$

139



$

44



$

97



$

(132)



$

917















% change - 2020 vs. 2019:













Reported growth


18.2

%


69.2

%


39.3

%


(8.2)

%


(9.5)

%


24.1

%

Mark-to-market


?

%


?

%


?

%


?

%


(13.8)

%


(2.8)

%

Project K


2.3

%


2.5

%


13.7

%


3.5

%


0.1

%


3.7

%

Brexit impacts


?

%


9.2

%


?

%


?

%


?

%


0.9

%

Business and portfolio realignment


8.0

%


39.4

%


(3.9)

%


(10.7)

%


12.1

%


12.7

%

Multi-employer pension plan withdrawal


0.6

%


?

%


?

%


?

%


?

%


0.5

%

Adjusted growth


7.3

%


18.1

%


29.5

%


(1.0)

%


(7.9)

%


9.1

%

Foreign currency impact


(0.2)

%


(3.2)

%


(17.1)

%


(5.4)

%


0.7

%


(1.9)

%

Currency-neutral adjusted growth


7.5

%


21.3

%


46.6

%


4.4

%


(8.6)

%


11.0

%

Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Income Taxes to Adjusted Income Taxes and Reported Effective Tax Rate to Adjusted Effective Tax Rate



Quarter ended


Year-to-date period ended



June 27,
2020


June 29,
2019


June 27,
2020


June 29,
2019

Reported income taxes


$

109



$

74



$

203



$

146


Mark-to-market


(23)



10



(20)



(2)


Project K


?



(4)



?



(4)


Brexit impacts


?



(1)



?



(1)


Business and portfolio realignment


(1)



(20)



(4)



(27)


Multi-employer pension plan withdrawal


1



?



1



?


Adjusted income taxes


$

132



$

89



$

226



$

180


Reported effective tax rate


23.3

%


20.1

%


22.2

%


20.1

%

Mark-to-market


(0.5)

%


0.7

%


(0.3)

%


(0.1)

%

Project K


?

%


(0.3)

%


?

%


0.1

%

Brexit impacts


?

%


?

%


?

%


0.1

%

Business and portfolio realignment


0.4

%


(0.8)

%


0.1

%


(0.5)

%

Multi-employer pension plan withdrawal


?

%


?

%


?

%


?

%

Adjusted effective tax rate


23.4

%


20.5

%


22.5

%


20.5

%

Note: Tables may not foot due to rounding
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Diluted Earnings Per Share to Currency-Neutral Adjusted Diluted Earnings Per Share


Quarter ended


Year-to-date period ended


June 27,
2020


June 29,
2019


June 27,
2020


June 29,
2019

Reported EPS

$

1.02



$

0.84



$

2.02



$

1.66


Mark-to-market (pre-tax)

(0.25)



0.10



(0.21)



(0.02)


Project K (pre-tax)

?



(0.05)



?



(0.07)


Brexit impacts (pre-tax)

?



(0.01)



?



(0.02)


Business and portfolio realignment (pre-tax)

(0.05)



(0.24)



(0.07)



(0.33)


Multi-employer pension plan withdrawal (pre-tax)

0.01



?



0.01



?


Income tax impact applicable to adjustments, net*

0.07



0.05



0.07



0.10


Adjusted EPS

$

1.24



$

0.99



$

2.22



$

2.00


Foreign currency impact

(0.02)



?



(0.04)



?


Currency-neutral adjusted EPS

$

1.26



$

0.99



$

2.26



$

2.00


Note: Tables may not foot due to rounding.
For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.
*Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Net Sales Growth to Currency-Neutral Net Sales Growth
North America

Net sales % change - second quarter 2020 vs. 2019:




North America

Reported Net Sales

Foreign Currency

Currency-Neutral Net Sales

Divestitures

Organic Net Sales

Snacks

(12.8)

%

(0.1)

%

(12.7)

%

(18.7)

%

6.0

%

Cereal

25.0

%

(0.6)

%

25.6

%

?

%

25.6

%

Frozen

10.6

%

(0.3)

%

10.9

%

?

%

10.9

%

 







Net sales % change - second quarter year-to-date 2020 vs. 2019:




North America

Reported Net Sales

Foreign Currency

Currency-Neutral Net Sales

Divestitures

Organic Net Sales

Snacks

(15.1)

%

(0.1)

%

(15.0)

%

(23.4)

%

8.4

%

Cereal

13.5

%

(0.3)

%

13.8

%

?

%

13.8

%

Frozen

9.5

%

(0.2)

%

9.7

%

?

%

9.7

%

 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Net Debt






(millions, unaudited)


June 27,
2020


June 29,
2019


June 30,
2018

Notes payable


$

121



$

568



$

324


Current maturities of long-term debt


1,396



508



7


Long-term debt


6,929



8,262



8,737


Total debt liabilities


8,446



9,338



9,068


Less:







Cash and cash equivalents


(1,047)



(340)



(257)


Marketable securities


(200)



?



?


Net debt


$

7,199



$

8,998



$

8,811


 

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Cash Flow to Kellogg Defined Cash Flow



Year-to-date period ended

(millions, unaudited)


June 27,
2020


June 29,
2019


June 30,
2018

Operating activities







Net Income


$

704



$

577



$

1,043


Adjustments to reconcile net income to
operating cash flows:







Depreciation and amortization


234



243



234


Postretirement benefit plan expense (benefit)


(58)



(65)



(86)


Deferred income taxes


23



23



69


Stock compensation


37



29



30


Gain from unconsolidated entities, net


?



?



(200)


Other


(17)



1



(67)


Postretirement benefit plan contributions


(12)



(12)



(274)


Changes in operating assets and liabilities, net of acquisitions:







Trade receivables


(165)



(239)



(83)


Inventories


(33)



(6)



(38)


Accounts payable


105



29



64


All other current assets and liabilities


153



(60)



(245)









Net cash provided by (used in) operating activities


971



520



447


Less:







Additions to properties


(218)



(294)



(270)


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


$

753



$

226



$

177


(a) Cash flow is defined as net cash provided by operating activities less capital expenditures.  We use this non-GAAP financial measure to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities and share repurchase.

 

Significant items impacting comparability

Mark-to-market accounting for pension plans, commodities and certain foreign currency contracts
We recognize mark-to-market adjustments for pension plans, commodity contracts, and certain foreign currency contracts as incurred. Actuarial gains/losses for pension plans are recognized in the year they occur. Changes between contract and market prices for commodities contracts and certain foreign currency contracts result in gains/losses that are recognized in the quarter they occur. We recorded a pre-tax mark-to-market expense of $86 million and $74 million for the quarter and year-to date periods ended June 27, 2020, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $43 million and $57 million for the quarter and year-to-date periods ended June 27, 2020, respectively. Additionally, we recorded a pre-tax mark-to-market benefit of $35 million and a pre-tax mark-to-market expense of $6 million for the quarter and year-to-date periods ended June 29, 2019, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $11 million and $10 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

Project K
In 2019, the Company completed implementation of all Project K initiatives. We recorded pre-tax charges related to this program of $15 million and $23 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

Brexit impacts
During 2019, with the uncertainty of the United Kingdom's (U.K.) exit from the European Union (EU), commonly referred to as Brexit, we incurred certain costs to proactively prepare for the potential adverse impacts, such as delays at ports of entry and departure.  As a result, we incurred pre-tax charges of $3 million and $6 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

Business and portfolio realignment
One-time costs related to reorganizations in support of our Deploy for Growth priorities and a reshaped portfolio; investments in enhancing capabilities prioritized by our Deploy for Growth strategy; and completed and prospective divestitures and acquisitions, including the divestiture of our cookies, fruit snacks, pie crusts, and ice-cream cone businesses. As a result, we incurred pre-tax charges, primarily related to reorganizations, of $17 million and $23 million for the quarter and year-to-date periods ended June 27, 2020, respectively. We also recorded pre-tax charges of $83 million and $114 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

Multi-employer pension plan withdrawal
During the second quarter of 2020, the Company recorded a pre-tax gain of approximately $5 million related to the settlement of a multi-employer pension plan liability.

Divestitures
On July 28, 2019, the Company completed its sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero for approximately $1.3 billion in cash, subject to a working capital adjustment mechanism. The operating results for these businesses were included primarily in our North America reportable segment, and to a lesser extent, Latin America, prior to the sale. Reported net sales for the divested businesses totaled $194 million and $507 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

Foreign currency translation
We evaluate the operating results of our business on a currency-neutral basis. We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

SOURCE Kellogg Company


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