Delaware | 1-4171 | 38-0710690 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | |||
Emerging growth company | o | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange | |||
Act. | o |
KELLOGG COMPANY | ||
Date: October 31, 2018 | /s/ Fareed Khan | |
Name: Fareed Khan | ||
Title: Senior Vice President and Chief Financial Officer |
Kellogg Company | |
Financial News Release | |
Analyst Contact: | |
John Renwick, CFA (269) 961-9050 | |
Media Contact: | |
Kris Bahner (269) 961-3799 | |
• | Sustained net sales growth, driven by both organic growth and acquisitions made over the past twelve months. |
• | Improving consumption trends demonstrated across key markets, categories and brands. |
• | Another substantial increase in brand investment, as well as continued increased costs related to expanding new pack formats. |
• | Continued earnings per share growth. |
• | Management updated its financial guidance* for the full year 2018, moving its outlook to the high end of its previously stated range for currency-neutral net sales growth, and decreasing its outlook for currency-neutral adjusted operating profit and earnings per share to reflect increased investment and growth-related costs and mix shifts. |
Financial Summary: | Quarter ended | Year-to-date period ended | ||||||||||||||||||||
(millions, except per share data) | September 29, 2018 | September 30, 2017* | % Change | September 29, 2018 | September 30, 2017* | % Change | ||||||||||||||||
Reported Net Sales | $ | 3,469 | $ | 3,246 | 6.8 | % | $ | 10,230 | $ | 9,669 | 5.8 | % | ||||||||||
Currency-Neutral Net Sales ** | $ | 3,549 | $ | 3,246 | 9.3 | % | $ | 10,241 | $ | 9,669 | 5.9 | % | ||||||||||
Organic Net Sales ** | $ | 3,260 | $ | 3,246 | 0.4 | % | $ | 9,690 | $ | 9,669 | 0.2 | % | ||||||||||
Reported Operating Profit | $ | 396 | $ | 333 | 18.8 | % | $ | 1,380 | $ | 998 | 38.3 | % | ||||||||||
Adjusted Operating Profit ** | $ | 471 | $ | 490 | (4.0 | )% | $ | 1,447 | $ | 1,433 | 1.0 | % | ||||||||||
Currency-Neutral Adjusted Operating Profit ** | $ | 478 | $ | 490 | (2.6 | )% | $ | 1,441 | $ | 1,433 | 0.5 | % | ||||||||||
Reported Diluted Earnings Per Share | $ | 1.09 | $ | 0.83 | 31.3 | % | $ | 4.07 | $ | 2.38 | 71.0 | % | ||||||||||
Adjusted Diluted Earnings Per Share ** | $ | 1.06 | $ | 1.03 | 2.9 | % | $ | 3.42 | $ | 3.07 | 11.4 | % | ||||||||||
Currency-Neutral Adjusted Diluted Earnings Per Share ** | $ | 1.07 | $ | 1.03 | 3.9 | % | $ | 3.39 | $ | 3.07 | 10.4 | % |
• | The U.S. Snacks segment posted lower net sales year-on-year, mainly due to the list-price adjustment and rationalization of SKUs that were related to last summer's transition out of its DSD distribution system. Operating profit increased in the quarter, both on a reported and adjusted basis, owing to lower restructuring charges and to reductions in overhead related to the DSD transition, which more than offset a substantial increase in advertising and promotion investment, as well as costs related to new and rapidly growing single-serve pack formats. These incremental costs in the third quarter were less offset by overhead savings than in the previous quarters this year, because the elimination of DSD's overhead began during the year-ago quarter. |
• | The U.S. Morning Foods segment’s year-on-year net sales declines moderated in the quarter. Cereal consumption and share were impacted by the June recall of Honey Smacks, which masked improving performance elsewhere in the portfolio. Of note, the Company continued to make progress toward stabilizing key health and wellness brands, by emphasizing their wellness attributes. In addition, Pop-Tarts returned to consumption growth. The segment's operating profit declined on a reported and adjusted basis, mainly due to the lower net sales, higher brand investment, and costs related to new pack formats. |
• | The U.S. Specialty Channels segment posted a modest decrease in net sales, as it lapped year-earlier shipments related to hurricanes in the southeastern U.S. Operating profit declined, once again due to the change in cost allocations made this year between U.S. operating segments. |
• | The North America Other segment, which is comprised of the U.S. Frozen Foods, Kashi, RX and Canadian businesses, increased net sales strongly on both a reported and currency-neutral basis. RX continued its strong growth, expanding distribution and share; it contributed just under 14 percentage points to North America Other's net sales growth in the quarter. The remaining currency-neutral net sales growth in this |
• | Increased net sales growth outlook to approximately 5% on a currency-neutral basis. This guidance is the high end of the Company's previous guidance range, and it still includes a negative impact of 1% from U.S. Snacks’ DSD transition, including its list-price adjustment and rationalization of SKUs. The improved guidance reflects improved net sales and consumption trends. |
• | Reducing guidance for adjusted operating profit growth to roughly flat on a currency-neutral basis. Operating profit growth in the fourth quarter will be restrained by similar factors experienced in the third quarter: Increased investments and continued mix shifts and costs as the Company expands its co-packed pack formats. |
• | Reducing adjusted earnings per share growth outlook to +7-8% on a currency-neutral basis. This revision is driven by the reduction in adjusted operating profit guidance, partially offset by year-to-date favorability in effective tax rate that brings the full-year rate to the low end of previous guidance. |
• | Affirming cash flow at approximately $1 billion. |
• | Currency-neutral net sales and organic net sales: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of acquisitions, dispositions, related integration costs, shipping day differences, and foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales measures, management intends to provide investors with a meaningful, consistent comparison of net sales performance for the Company and each of our reportable segments for the periods presented. Management uses these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions. |
• | Adjusted operating profit and diluted EPS: We adjust the GAAP financial measures to exclude the effect of Project K and cost reduction activities, 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, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, such as Project K, ZBB and Revenue Growth Management, to assess performance of newly acquired |
• | Currency-neutral adjusted gross profit, gross margin, operating profit, operating profit margin, and diluted EPS: We adjust the GAAP financial measures to exclude the effect of Project K and cost reduction activities, 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, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, such as Project K, ZBB and Revenue Growth Management, to assess performance of newly acquired businesses, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments. |
• | Cash flow: Defined as net cash provided by operating activities reduced by expenditures for property additions. Cash flow does not represent the residual cash flow available for discretionary expenditures. We use this non-GAAP financial measure of cash flow to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases once all of the Company’s business needs and obligations are met. Additionally, certain performance-based compensation includes a component of this non-GAAP measure. |
Impact of certain items excluded from Non-GAAP guidance: | Net Sales | Operating Profit | Earnings Per Share |
Project K and cost restructuring activities (pre-tax, within Operating Profit) | $150-165M | $0.43-0.47 | |
Project K and cost restructuring activities (pre-tax, within Other Income and Expense)*** | ($0.09)-(0.10) | ||
Income tax impact applicable to adjustments, net** | $0.08-0.09 | ||
Currency-neutral adjusted guidance* | ~5% | ~Flat | 7-8% |
Reconciliation of Non-GAAP amounts - Cash Flow Guidance | |
(billions) | |
Full Year 2018 | |
Net cash provided by (used in) operating activities | ~$1.5 |
Additions to properties | ~($.5) |
Cash Flow | ~$1.0 |
Quarter ended | Year-to-date period ended | |||||||||||||||
(Results are unaudited) | September 29, 2018 | September 30, 2017* | September 29, 2018 | September 30, 2017* | ||||||||||||
Net sales | $ | 3,469 | $ | 3,246 | $ | 10,230 | $ | 9,669 | ||||||||
Cost of goods sold | 2,293 | 2,074 | 6,593 | 6,112 | ||||||||||||
Selling, general and administrative expense | 780 | 839 | 2,257 | 2,559 | ||||||||||||
Operating profit | 396 | 333 | 1,380 | 998 | ||||||||||||
Interest expense | 72 | 64 | 213 | 188 | ||||||||||||
Other income (expense), net | 130 | 117 | 269 | 268 | ||||||||||||
Income before income taxes | 454 | 386 | 1,436 | 1,078 | ||||||||||||
Income taxes | 69 | 101 | 206 | 246 | ||||||||||||
Earnings (loss) from unconsolidated entities | (2 | ) | 3 | 196 | 5 | |||||||||||
Net income | 383 | 288 | 1,426 | 837 | ||||||||||||
Net income (loss) attributable to noncontrolling interests | 3 | — | 6 | — | ||||||||||||
Net income attributable to Kellogg Company | $ | 380 | $ | 288 | $ | 1,420 | $ | 837 | ||||||||
Per share amounts: | ||||||||||||||||
Basic earnings | $ | 1.10 | $ | 0.83 | $ | 4.10 | $ | 2.40 | ||||||||
Diluted earnings | $ | 1.09 | $ | 0.83 | $ | 4.07 | $ | 2.38 | ||||||||
Dividends | $ | 0.56 | $ | 0.54 | $ | 1.64 | $ | 1.58 | ||||||||
Average shares outstanding: | ||||||||||||||||
Basic | 347 | 345 | 346 | 348 | ||||||||||||
Diluted | 349 | 348 | 349 | 351 | ||||||||||||
Actual shares outstanding at period end | 347 | 345 |
Year-to-date period ended | ||||||||
(unaudited) | September 29, 2018 | September 30, 2017* | ||||||
Operating activities | ||||||||
Net income | $ | 1,426 | $ | 837 | ||||
Adjustments to reconcile net income to operating cash flows: | ||||||||
Depreciation and amortization | 374 | 366 | ||||||
Postretirement benefit plan expense (benefit) | (188 | ) | (191 | ) | ||||
Deferred income taxes | 99 | (21 | ) | |||||
Stock compensation | 42 | 53 | ||||||
Gain from unconsolidated entities, net | (200 | ) | — | |||||
Other | (91 | ) | 46 | |||||
Postretirement benefit plan contributions | (279 | ) | (33 | ) | ||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Trade receivables | (139 | ) | (1,168 | ) | ||||
Inventories | (67 | ) | 78 | |||||
Accounts payable | 103 | 135 | ||||||
All other current assets and liabilities | (154 | ) | 88 | |||||
Net cash provided by (used in) operating activities | 926 | 190 | ||||||
Investing activities | ||||||||
Additions to properties | (389 | ) | (374 | ) | ||||
Collections of deferred purchase price on securitized trade receivables | — | 945 | ||||||
Acquisitions, net of cash acquired | (28 | ) | 4 | |||||
Investments in unconsolidated entities, net proceeds | (389 | ) | — | |||||
Acquisition of cost method investments | (6 | ) | (6 | ) | ||||
Other | 27 | (1 | ) | |||||
Net cash provided by (used in) investing activities | (785 | ) | 568 | |||||
Financing activities | ||||||||
Net issuances (reductions) of notes payable | (198 | ) | 134 | |||||
Issuances of long-term debt | 993 | 656 | ||||||
Reductions of long-term debt | (401 | ) | (626 | ) | ||||
Net issuances of common stock | 160 | 87 | ||||||
Common stock repurchases | (120 | ) | (516 | ) | ||||
Cash dividends | (568 | ) | (550 | ) | ||||
Other | (2 | ) | — | |||||
Net cash provided by (used in) financing activities | (136 | ) | (815 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 23 | 44 | ||||||
Increase (decrease) in cash and cash equivalents | 28 | (13 | ) | |||||
Cash and cash equivalents at beginning of period | 281 | 280 | ||||||
Cash and cash equivalents at end of period | $ | 309 | $ | 267 |
September 29, 2018 | December 30, 2017 | |||||||
(unaudited) | * | |||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 309 | $ | 281 | ||||
Accounts receivable, net | 1,612 | 1,389 | ||||||
Inventories | 1,319 | 1,217 | ||||||
Other current assets | 163 | 149 | ||||||
Total current assets | 3,403 | 3,036 | ||||||
Property, net | 3,639 | 3,716 | ||||||
Goodwill | 6,055 | 5,504 | ||||||
Other intangibles, net | 3,372 | 2,639 | ||||||
Investments in unconsolidated entities | 422 | 429 | ||||||
Other assets | 1,223 | 1,027 | ||||||
Total assets | $ | 18,114 | $ | 16,351 | ||||
Current liabilities | ||||||||
Current maturities of long-term debt | $ | 6 | $ | 409 | ||||
Notes payable | 202 | 370 | ||||||
Accounts payable | 2,367 | 2,269 | ||||||
Other current liabilities | 1,455 | 1,474 | ||||||
Total current liabilities | 4,030 | 4,522 | ||||||
Long-term debt | 8,715 | 7,836 | ||||||
Deferred income taxes | 752 | 355 | ||||||
Pension liability | 513 | 839 | ||||||
Other liabilities | 489 | 605 | ||||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Common stock, $.25 par value | 105 | 105 | ||||||
Capital in excess of par value | 883 | 878 | ||||||
Retained earnings | 7,929 | 7,069 | ||||||
Treasury stock, at cost | (4,357 | ) | (4,417 | ) | ||||
Accumulated other comprehensive income (loss) | (1,512 | ) | (1,457 | ) | ||||
Total Kellogg Company equity | 3,048 | 2,178 | ||||||
Noncontrolling interests | 567 | 16 | ||||||
Total equity | 3,615 | 2,194 | ||||||
Total liabilities and equity | $ | 18,114 | $ | 16,351 |
Quarter ended September 29, 2018 | ||||||||||||||||||||||||
(Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Other income (expense) | Income taxes | Earnings (loss) from unconsolidated entities | Net income (loss) | Per share amount: Diluted | ||||||||||||||||
Mark-to-market (pre-tax) | $ | 10 | $ | 1 | $ | (11 | ) | $ | 36 | $ | — | $ | — | $ | 25 | $ | 0.07 | |||||||
Project K and cost reduction activities (pre-tax) | 49 | 15 | (64 | ) | 30 | — | — | (34 | ) | (0.10 | ) | |||||||||||||
Income tax impact applicable to adjustments, net** | — | — | — | — | (4 | ) | — | 4 | 0.01 | |||||||||||||||
U.S.Tax Reform | — | — | — | — | (16 | ) | — | 16 | 0.05 | |||||||||||||||
Gain from unconsolidated entities, net | — | — | — | — | — | — | — | — | ||||||||||||||||
Foreign currency impact | (58 | ) | (15 | ) | (7 | ) | (1 | ) | (1 | ) | (1 | ) | (6 | ) | (0.01 | ) | ||||||||
Adjustments to adjusted basis | $ | 1 | $ | 1 | $ | (82 | ) | $ | 65 | $ | (21 | ) | $ | (1 | ) | $ | 5 | $ | 0.02 | |||||
Quarter ended September 30, 2017* | ||||||||||||||||||||||||
(Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Other income (expense) | Income taxes | Earnings (loss) from unconsolidated entities | Net income (loss) | Per share amount: Diluted | ||||||||||||||||
Mark-to-market (pre-tax) | $ | 21 | $ | — | $ | (21 | ) | $ | (82 | ) | $ | — | $ | — | $ | (103 | ) | $ | (0.30 | ) | ||||
Project K and cost reduction activities (pre-tax) | 49 | 87 | (136 | ) | 134 | — | — | (2 | ) | — | ||||||||||||||
Income tax impact applicable to adjustments, net** | — | — | — | — | (36 | ) | — | 36 | 0.10 | |||||||||||||||
Adjustments to adjusted basis | $ | 70 | $ | 87 | $ | (157 | ) | $ | 52 | $ | (36 | ) | $ | — | $ | (69 | ) | $ | (0.20 | ) |
Year-to-date period ended September 29, 2018 | ||||||||||||||||||||||||
(Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Other income (expense) | Income taxes | Earnings (loss) from unconsolidated entities | Net income (loss) | Per share amount: Diluted | ||||||||||||||||
Mark-to-market (pre-tax) | $ | (22 | ) | $ | — | $ | 22 | $ | 47 | $ | — | $ | — | $ | 69 | $ | 0.20 | |||||||
Project K and cost reduction activities (pre-tax) | 58 | 31 | (89 | ) | 30 | — | — | $ | (59 | ) | (0.17 | ) | ||||||||||||
Income tax impact applicable to adjustments, net** | — | — | — | — | (1 | ) | — | 1 | — | |||||||||||||||
U.S.Tax Reform | — | — | — | — | (16 | ) | — | 16 | 0.05 | |||||||||||||||
Gain from unconsolidated entities, net | — | — | — | — | — | 200 | 200 | 0.57 | ||||||||||||||||
Foreign currency impact | (18 | ) | 1 | 6 | 4 | (1 | ) | (1 | ) | 11 | 0.03 | |||||||||||||
Adjustments to adjusted basis | $ | 18 | $ | 32 | $ | (61 | ) | $ | 81 | $ | (18 | ) | $ | 199 | $ | 238 | $ | 0.68 | ||||||
Year-to-date period ended September 30, 2017* | ||||||||||||||||||||||||
(Results are unaudited) | Cost of goods sold | Selling, general and administrative expense | Operating profit | Other income (expense) | Income taxes | Earnings (loss) from unconsolidated entities | Net income (loss) | Per share amount: Diluted | ||||||||||||||||
Mark-to-market (pre-tax) | $ | 60 | $ | 3 | $ | (63 | ) | $ | (55 | ) | $ | — | $ | — | $ | (118 | ) | $ | (0.34 | ) | ||||
Project K and cost reduction activities (pre-tax) | 85 | 287 | (372 | ) | 133 | — | — | (239 | ) | (0.68 | ) | |||||||||||||
Income tax impact applicable to adjustments, net** | — | — | — | — | (117 | ) | — | 117 | 0.33 | |||||||||||||||
Adjustments to adjusted basis | $ | 145 | $ | 290 | $ | (435 | ) | $ | 78 | $ | (117 | ) | $ | — | $ | (240 | ) | $ | (0.69 | ) |
Quarter ended September 29, 2018 | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported net sales | $ | 737 | $ | 683 | $ | 285 | $ | 483 | $ | 2,188 | $ | 596 | $ | 239 | $ | 446 | $ | — | $ | 3,469 | ||||||||||||||||||||
Foreign currency impact on total business (inc)/dec | — | — | — | (5 | ) | (5 | ) | (10 | ) | (21 | ) | (44 | ) | — | (80 | ) | ||||||||||||||||||||||||
Currency-neutral net sales | $ | 737 | $ | 683 | $ | 285 | $ | 488 | $ | 2,193 | $ | 606 | $ | 260 | $ | 490 | $ | — | $ | 3,549 | ||||||||||||||||||||
Acquisitions | — | — | — | 57 | 57 | — | — | 199 | — | 256 | ||||||||||||||||||||||||||||||
Foreign currency impact on acquisitions (inc)/dec | — | — | — | — | — | — | — | 33 | — | 33 | ||||||||||||||||||||||||||||||
Organic net sales | $ | 737 | $ | 683 | $ | 285 | $ | 431 | $ | 2,136 | $ | 606 | $ | 260 | $ | 258 | $ | — | $ | 3,260 | ||||||||||||||||||||
Quarter ended September 30, 2017* | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported net sales | $ | 764 | $ | 692 | $ | 288 | $ | 419 | $ | 2,163 | $ | 599 | $ | 235 | $ | 249 | $ | — | $ | 3,246 | ||||||||||||||||||||
% change - 2018 vs. 2017: | ||||||||||||||||||||||||||||||||||||||||
Reported growth | (3.5 | )% | (1.3 | )% | (1.3 | )% | 15.2 | % | 1.1 | % | (0.5 | )% | 1.4 | % | 79.0 | % | — | % | 6.8 | % | ||||||||||||||||||||
Foreign currency impact on total business (inc)/dec | — | % | — | % | — | % | (1.3 | )% | (0.3 | )% | (1.8 | )% | (9.1 | )% | (17.3 | )% | — | % | (2.5 | )% | ||||||||||||||||||||
Currency-neutral growth | (3.5 | )% | (1.3 | )% | (1.3 | )% | 16.5 | % | 1.4 | % | 1.3 | % | 10.5 | % | 96.3 | % | — | % | 9.3 | % | ||||||||||||||||||||
Acquisitions | — | % | — | % | — | % | 13.7 | % | 2.7 | % | — | % | — | % | 79.5 | % | — | % | 7.9 | % | ||||||||||||||||||||
Foreign currency impact on acquisitions (inc)/dec | — | % | — | % | — | % | — | % | — | % | — | % | — | % | 13.2 | % | — | % | 1.0 | % | ||||||||||||||||||||
Organic growth | (3.5 | )% | (1.3 | )% | (1.3 | )% | 2.8 | % | (1.3 | )% | 1.3 | % | 10.5 | % | 3.6 | % | — | % | 0.4 | % | ||||||||||||||||||||
Volume (tonnage) | (0.5 | )% | 4.0 | % | 10.9 | % | 2.9 | % | — | % | 1.9 | % | ||||||||||||||||||||||||||||
Pricing/mix | (0.8 | )% | (2.7 | )% | (0.4 | )% | 0.7 | % | — | % | (1.5 | )% |
Year-to-date period ended September 29, 2018 | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported net sales | $ | 2,244 | $ | 2,017 | $ | 960 | $ | 1,424 | $ | 6,645 | $ | 1,804 | $ | 710 | $ | 1,071 | $ | — | $ | 10,230 | ||||||||||||||||||||
Foreign currency impact on total business (inc)/dec | — | — | — | 3 | 3 | 72 | (30 | ) | (56 | ) | — | (11 | ) | |||||||||||||||||||||||||||
Currency-neutral net sales | $ | 2,244 | $ | 2,017 | $ | 960 | $ | 1,421 | $ | 6,642 | $ | 1,732 | $ | 740 | $ | 1,127 | $ | — | $ | 10,241 | ||||||||||||||||||||
Acquisitions | — | — | — | 167 | 167 | — | — | 328 | — | 495 | ||||||||||||||||||||||||||||||
Foreign currency impact on acquisitions (inc)/dec | — | — | — | — | — | — | — | 56 | — | 56 | ||||||||||||||||||||||||||||||
Organic net sales | $ | 2,244 | $ | 2,017 | $ | 960 | $ | 1,254 | $ | 6,475 | $ | 1,732 | $ | 740 | $ | 743 | $ | — | $ | 9,690 | ||||||||||||||||||||
Year-to-date period ended September 30, 2017* | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported net sales | $ | 2,374 | $ | 2,064 | $ | 956 | $ | 1,201 | $ | 6,595 | $ | 1,679 | $ | 687 | $ | 708 | $ | — | $ | 9,669 | ||||||||||||||||||||
% change - 2018 vs. 2017: | ||||||||||||||||||||||||||||||||||||||||
Reported growth | (5.5 | )% | (2.3 | )% | 0.5 | % | 18.5 | % | 0.8 | % | 7.4 | % | 3.4 | % | 51.3 | % | — | % | 5.8 | % | ||||||||||||||||||||
Foreign currency impact on total business (inc)/dec | — | % | — | % | — | % | 0.2 | % | 0.1 | % | 4.3 | % | (4.4 | )% | (7.8 | )% | — | % | (0.1 | )% | ||||||||||||||||||||
Currency-neutral growth | (5.5 | )% | (2.3 | )% | 0.5 | % | 18.3 | % | 0.7 | % | 3.1 | % | 7.8 | % | 59.1 | % | — | % | 5.9 | % | ||||||||||||||||||||
Acquisitions | — | % | — | % | — | % | 13.9 | % | 2.5 | % | — | % | — | % | 46.3 | % | — | % | 5.1 | % | ||||||||||||||||||||
Foreign currency impact on acquisitions (inc)/dec | — | % | — | % | — | % | — | % | — | % | — | % | — | % | 7.9 | % | — | % | 0.6 | % | ||||||||||||||||||||
Organic growth | (5.5 | )% | (2.3 | )% | 0.5 | % | 4.4 | % | (1.8 | )% | 3.1 | % | 7.8 | % | 4.9 | % | — | % | 0.2 | % | ||||||||||||||||||||
Volume (tonnage) | 0.3 | % | 5.4 | % | 9.0 | % | 4.7 | % | — | % | 2.5 | % | ||||||||||||||||||||||||||||
Pricing/mix | (2.1 | )% | (2.3 | )% | (1.2 | )% | 0.2 | % | — | % | (2.3 | )% |
Quarter ended | Year-to-date period ended | |||||||||||||||
September 29, 2018 | September 30, 2017* | September 29, 2018 | September 30, 2017* | |||||||||||||
Reported gross profit | $ | 1,176 | $ | 1,172 | $ | 3,637 | $ | 3,557 | ||||||||
Mark-to-market (COGS) | (10 | ) | (21 | ) | 22 | (60 | ) | |||||||||
Project K and cost reduction activities (COGS) | (49 | ) | (49 | ) | (58 | ) | (85 | ) | ||||||||
Foreign currency impact | (22 | ) | — | 7 | — | |||||||||||
Currency-neutral adjusted gross profit | $ | 1,257 | $ | 1,242 | $ | 3,666 | $ | 3,702 |
Quarter ended | Year-to-date period ended | |||||||||||
September 29, 2018 | September 30, 2017* | September 29, 2018 | September 30, 2017* | |||||||||
Reported gross margin | 33.9 | % | 36.1 | % | 35.6 | % | 36.8 | % | ||||
Mark-to-market (COGS) | (0.3 | )% | (0.7 | )% | 0.3 | % | (0.6 | )% | ||||
Project K and cost reduction activities (COGS) | (1.4 | )% | (1.5 | )% | (0.6 | )% | (0.9 | )% | ||||
Foreign currency impact | 0.2 | % | — | % | 0.1 | % | — | % | ||||
Currency-neutral adjusted gross margin | 35.4 | % | 38.3 | % | 35.8 | % | 38.3 | % |
Quarter ended September 29, 2018 | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported operating profit | $ | 119 | $ | 112 | $ | 62 | $ | 37 | $ | 330 | $ | 74 | $ | 28 | $ | 35 | $ | (71 | ) | $ | 396 | |||||||||||||||||||
Mark-to-market | — | — | — | — | — | — | — | — | (11 | ) | (11 | ) | ||||||||||||||||||||||||||||
Project K and cost reduction activities | (4 | ) | (19 | ) | (1 | ) | (20 | ) | (44 | ) | (14 | ) | (3 | ) | (2 | ) | (1 | ) | (64 | ) | ||||||||||||||||||||
Adjusted operating profit | $ | 123 | $ | 131 | $ | 63 | $ | 57 | $ | 374 | $ | 88 | $ | 31 | $ | 37 | $ | (59 | ) | $ | 471 | |||||||||||||||||||
Foreign currency impact | — | — | — | (1 | ) | (1 | ) | (2 | ) | (1 | ) | (3 | ) | — | (7 | ) | ||||||||||||||||||||||||
Currency-neutral adjusted operating profit | $ | 123 | $ | 131 | $ | 63 | $ | 58 | $ | 375 | $ | 90 | $ | 32 | $ | 40 | $ | (59 | ) | $ | 478 | |||||||||||||||||||
Quarter ended September 30, 2017* | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported operating profit | $ | 13 | $ | 132 | $ | 76 | $ | 65 | $ | 286 | $ | 71 | $ | 23 | $ | 24 | $ | (71 | ) | $ | 333 | |||||||||||||||||||
Mark-to-market | — | — | — | — | — | — | — | — | (21 | ) | (21 | ) | ||||||||||||||||||||||||||||
Project K and cost reduction activities | (106 | ) | (14 | ) | — | (4 | ) | (124 | ) | (13 | ) | (2 | ) | (1 | ) | 4 | (136 | ) | ||||||||||||||||||||||
Adjusted operating profit | $ | 119 | $ | 146 | $ | 76 | $ | 69 | $ | 410 | $ | 84 | $ | 25 | $ | 25 | $ | (54 | ) | $ | 490 | |||||||||||||||||||
% change - 2018 vs. 2017: | ||||||||||||||||||||||||||||||||||||||||
Reported growth | 778.3 | % | (15.1 | )% | (19.1 | )% | (42.3 | )% | 15.2 | % | 5.2 | % | 16.0 | % | 42.3 | % | 1.7 | % | 18.8 | % | ||||||||||||||||||||
Mark-to-market | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | 19.8 | % | 4.0 | % | ||||||||||||||||||||
Project K and cost reduction activities | 775.4 | % | (5.2 | )% | (0.3 | )% | (26.3 | )% | 24.1 | % | (0.5 | )% | (2.1 | )% | 0.3 | % | (11.5 | )% | 18.8 | % | ||||||||||||||||||||
Adjusted growth | 2.9 | % | (9.9 | )% | (18.8 | )% | (16.0 | )% | (8.9 | )% | 5.7 | % | 18.1 | % | 42.0 | % | (6.6 | )% | (4.0 | )% | ||||||||||||||||||||
Foreign currency impact | — | % | — | % | — | % | (1.2 | )% | (0.2 | )% | (1.8 | )% | (6.1 | )% | (11.8 | )% | 0.4 | % | (1.4 | )% | ||||||||||||||||||||
Currency-neutral adjusted growth | 2.9 | % | (9.9 | )% | (18.8 | )% | (14.8 | )% | (8.7 | )% | 7.5 | % | 24.2 | % | 53.8 | % | (7.0 | )% | (2.6 | )% |
Year-to-date period ended September 29, 2018 | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported operating profit | $ | 332 | $ | 400 | $ | 202 | $ | 180 | $ | 1,114 | $ | 245 | $ | 70 | $ | 90 | $ | (139 | ) | $ | 1,380 | |||||||||||||||||||
Mark-to-market | — | — | — | — | — | — | — | — | 22 | 22 | ||||||||||||||||||||||||||||||
Project K and cost reduction activities | (13 | ) | (31 | ) | (1 | ) | (21 | ) | (66 | ) | (8 | ) | (7 | ) | (5 | ) | (3 | ) | (89 | ) | ||||||||||||||||||||
Adjusted operating profit | $ | 345 | $ | 431 | $ | 203 | $ | 201 | $ | 1,180 | $ | 253 | $ | 77 | $ | 95 | $ | (158 | ) | $ | 1,447 | |||||||||||||||||||
Foreign currency impact | — | — | — | — | — | 9 | (1 | ) | (3 | ) | 1 | 6 | ||||||||||||||||||||||||||||
Currency-neutral adjusted operating profit | $ | 345 | $ | 431 | $ | 203 | $ | 201 | $ | 1,180 | $ | 244 | $ | 78 | $ | 98 | $ | (159 | ) | $ | 1,441 | |||||||||||||||||||
Year-to-date period ended September 30, 2017* | ||||||||||||||||||||||||||||||||||||||||
(millions) | U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | ||||||||||||||||||||||||||||||
Reported operating profit | $ | 6 | $ | 459 | $ | 242 | $ | 173 | $ | 880 | $ | 214 | $ | 82 | $ | 64 | $ | (242 | ) | $ | 998 | |||||||||||||||||||
Mark-to-market | — | — | — | — | — | — | — | — | (63 | ) | (63 | ) | ||||||||||||||||||||||||||||
Project K and cost reduction activities | (305 | ) | (16 | ) | (1 | ) | (13 | ) | (335 | ) | (21 | ) | (6 | ) | (5 | ) | (5 | ) | (372 | ) | ||||||||||||||||||||
Adjusted operating profit | $ | 311 | $ | 475 | $ | 243 | $ | 186 | $ | 1,215 | $ | 235 | $ | 88 | $ | 69 | $ | (174 | ) | $ | 1,433 | |||||||||||||||||||
% change - 2018 vs. 2017: | ||||||||||||||||||||||||||||||||||||||||
Reported growth | 5,540.6 | % | (12.8 | )% | (16.8 | )% | 4.2 | % | 26.6 | % | 14.6 | % | (15.2 | )% | 40.0 | % | 42.8 | % | 38.3 | % | ||||||||||||||||||||
Mark-to-market | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | 32.4 | % | 10.3 | % | ||||||||||||||||||||
Project K and cost reduction activities | 5,529.5 | % | (3.6 | )% | 0.1 | % | (4.1 | )% | 29.5 | % | 6.7 | % | (1.8 | )% | 3.2 | % | 0.9 | % | 27.0 | % | ||||||||||||||||||||
Adjusted growth | 11.1 | % | (9.2 | )% | (16.9 | )% | 8.3 | % | (2.9 | )% | 7.9 | % | (13.4 | )% | 36.8 | % | 9.5 | % | 1.0 | % | ||||||||||||||||||||
Foreign currency impact | — | % | — | % | — | % | (0.1 | )% | — | % | 3.9 | % | (1.3 | )% | (4.8 | )% | 0.9 | % | 0.5 | % | ||||||||||||||||||||
Currency-neutral adjusted growth | 11.1 | % | (9.2 | )% | (16.9 | )% | 8.4 | % | (2.9 | )% | 4.0 | % | (12.1 | )% | 41.6 | % | 8.6 | % | 0.5 | % |
Quarter ended September 29, 2018 | ||||||||||||||||||||||
U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | |||||||||||||
Basis points change* | % | |||||||||||||||||||||
Reported | 14.3 | (2.7 | ) | (4.8 | ) | (7.8 | ) | 1.9 | 0.7 | 1.4 | (2.0 | ) | — | 1.2 | 11.4 | % | ||||||
Mark-to-market | — | — | — | — | — | — | — | — | — | 0.4 | (0.3 | )% | ||||||||||
Project K and cost reduction activities | 13.2 | (0.9 | ) | (0.1 | ) | (3.4 | ) | 3.7 | (0.1 | ) | (0.4 | ) | 0.2 | — | 2.3 | (1.9 | )% | |||||
Foreign currency impact | — | — | — | — | — | — | 0.5 | 0.1 | — | 0.2 | 0.2 | % | ||||||||||
Currency-neutral adjusted | 1.1 | (1.8 | ) | (4.7 | ) | (4.4 | ) | (1.8 | ) | 0.8 | 1.3 | (2.3 | ) | — | (1.7 | ) | 13.4 | % |
Year-to-date period ended September 29, 2018 | ||||||||||||||||||||||
U.S. Snacks | U.S. Morning Foods | U.S. Specialty Channels | North America Other | Total North America | Europe | Latin America | Asia Pacific | Corporate | Kellogg Consolidated | |||||||||||||
Basis points change* | % | |||||||||||||||||||||
Reported | 14.6 | (2.4 | ) | (4.3 | ) | (1.7 | ) | 3.5 | 0.9 | (2.1 | ) | (0.7 | ) | — | 3.2 | 13.5 | % | |||||
Mark-to-market | — | — | — | — | — | — | — | — | — | 0.9 | 0.2 | % | ||||||||||
Project K and cost reduction activities | 12.3 | (0.8 | ) | 0.1 | (0.3 | ) | 4.1 | 0.9 | — | 0.2 | — | 3.0 | (0.8 | )% | ||||||||
Foreign currency impact | — | — | — | (0.1 | ) | — | (0.1 | ) | 0.3 | 0.2 | — | — | — | % | ||||||||
Currency-neutral adjusted | 2.3 | (1.6 | ) | (4.4 | ) | (1.3 | ) | (0.6 | ) | 0.1 | (2.4 | ) | (1.1 | ) | — | (0.7 | ) | 14.1 | % |
Quarter ended | Year-to-date period ended | ||||||||||||
September 29, 2018 | September 30, 2017* | September 29, 2018 | September 30, 2017* | ||||||||||
Reported EPS | $ | 1.09 | $ | 0.83 | $ | 4.07 | $ | 2.38 | |||||
Mark-to-market (pre-tax) | 0.07 | (0.30 | ) | 0.20 | (0.34 | ) | |||||||
Project K and cost reduction activities (pre-tax) | (0.10 | ) | — | (0.17 | ) | (0.68 | ) | ||||||
Income tax impact applicable to adjustments, net** | 0.01 | 0.10 | — | 0.33 | |||||||||
U.S. Tax Reform | 0.05 | — | 0.05 | — | |||||||||
Gain from unconsolidated entities, net | — | — | 0.57 | — | |||||||||
Adjusted EPS | $ | 1.06 | $ | 1.03 | $ | 3.42 | $ | 3.07 | |||||
Foreign currency impact | (0.01 | ) | 0.03 | ||||||||||
Currency-neutral adjusted EPS | $ | 1.07 | $ | 1.03 | $ | 3.39 | $ | 3.07 |
Year-to-date period ended | ||||||||
(millions, unaudited) | September 29, 2018 | September 30, 2017* | ||||||
Operating activities | ||||||||
Net Income | $ | 1,426 | $ | 837 | ||||
Adjustments to reconcile net income to operating cash flows: | ||||||||
Depreciation and amortization | 374 | 366 | ||||||
Postretirement benefit plan expense (benefit) | (188 | ) | (191 | ) | ||||
Deferred income taxes | 99 | (21 | ) | |||||
Stock compensation | 42 | 53 | ||||||
Gain from unconsolidated entities, net | (200 | ) | — | |||||
Other | (91 | ) | 46 | |||||
Postretirement benefit plan contributions | (279 | ) | (33 | ) | ||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Trade receivables | (139 | ) | (1,168 | ) | ||||
Inventories | (67 | ) | 78 | |||||
Accounts payable | 103 | 135 | ||||||
All other current assets and liabilities | (154 | ) | 88 | |||||
Net cash provided by (used in) operating activities | 926 | 190 | ||||||
Less: | ||||||||
Additions to properties | (389 | ) | (374 | ) | ||||
Cash flow (operating cash flow less property additions) (a) | $ | 537 | $ | (184 | ) |
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