As previously announced on April 24,
) has posted first quarter 2012 earnings per share of 95 cents
(excluding the impact from the pending Pringles acquisition), 3
cents below the Zacks Consensus Estimate of 98 cents due to weak
The world's largest cereal maker reported revenue of $3.4
billion, down 1.3% in the quarter, owing to the decline in
International sales. However, organically (excluding impact of
acquisitions, dispositions and foreign exchange), revenues were
flat with the prior-year quarter. Revenue was $3.5 billion
according to the Zacks Consensus Revenue Estimate.
Kellogg witnessed weak volume growth in some food categories in
its U.S. segment. The European business was also sluggish as the
region continued to face difficult economic conditions. Rising
commodity costs also contributed to the decline.
The maker of popular brands like Pop-Tarts, Keebler and Eggo
also reported operating profit of $535 million, down 6.5%.
Kellogg's adjusted operating profit was also down 6.1%.
: Kellogg North America sales increased 1.5% to $2.399 billion in
the first quarter from $2.364 billion. Organically, North America
sales increased 1.6% in the quarter.
The segment posted internal net sales growth of 2.3% in the U.S.
Snacks, 7.8% in the U.S. Specialty business and 3.4% growth in the
North America Other segment. However, the U.S. Morning Foods and
Kashi posted an internal net sales decline of 1.7% in the first
quarter of 2012.
Operating profit in the North American region declined 5.1% in
the quarter, while it declined 5.0% organically, owing to weak
volume growth in the U.S. categories.
: On the other hand, Kellogg International sales declined 7.1% to
$1.04 billion from $1.12 billion in the first quarter of 2011. The
international sales decreased 3.7% organically.
The segment posted internal net sales growth of 7.5% and 1.6% in
the regions of Latin American and Asia Pacific, respectively.
However, the internal net sales in the European business decreased
by 10.4% as the region continued to face difficult economic
conditions in the region.
Kellogg International's operating profit also declined 10.7% in
the first quarter and decreased 9.7% internally.
Other Financial Updates
Kellogg's interest expense was $32.6 million in the quarter,
including $26 million gains related to hedging. The effective tax
rate was 30.5% in the first quarter.
The company ended the quarter with cash and cash equivalents of
$404 million, as compared to $460 million in the prior quarter.
Long-term debt was approximately $4.3 billion at the end of March
31, 2012, as compared to $5.0 billion at the end of December 31,
Kellogg also repurchased $63 million in shares during the
quarter under its $2.5 billion three-year share repurchases
Kellogg also slashed its 2012 financial outlook on April 24,
citing weak US volumes and a struggling European business.
For the year 2012, the company expects its internal net sales
growth guidance in a band of 2%-3%, which was cut from a prior
range of 4%-5%. Operating profit for 2012 is expected in the range
of 2%-4%, down from prior expectations that profits would remain
flat to slightly up from 2011 levels.
Kellogg expects its adjusted earnings per share to range in
between $3.24-3.41 in fiscal 2012, down from the prior guidance of
$3.45-$3.52. The guidance excludes any impact from the pending
acquisition of the Pringles business from retail giant
Procter & Gamble Company
The $2.7 billion Pringles deal, which will dilute 2012 earnings
by 6-11 cents per share, is expected to close in June this year.
The Zacks Consensus Estimate for 2012 was $3.34 per share.
Overall, we like the company's strong market position and its
continued focus on brand building and innovation. The Pringles deal
will provide additional growth opportunity in fast-growing emerging
nations. It will also reduce Kellogg's dependence on its mainstay
cereals business which is somewhat struggling. However, we are
disappointed with the poor first quarter results and the related
cut in guidance. The sluggish cereal business together with rising
pressures in Europe keeps us on the sidelines.
Currently, we have a Neutral recommendation on Kellogg Company.
The stock carries a Zacks #3 Rank in the near term ('Hold'
KELLOGG CO (
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