Kellogg Company (K)

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Kellogg Company (K)

Q4 2009 Earnings Call

February 4, 2010 9:30 am ET


Kathryn Koessel – Vice President, Investor Relations

A. D. David Mackay – President and Chief Executive Officer

John A. Bryant – Chief Operating Officer

Ronald Dissinger – Chief Financial Officer


Terry Bivens - J.P. Morgan

Robert Moskow - Credit Suisse

Cornell Burnette - Citi Investments

David Palmer - UBS Investment Research

Alexia Howard - Sanford Bernstein

Ken Zaslow - BMO Capital Markets

Vincent Andrews - Morgan Stanley

Alex Patterson - RCM

Edward Aaron - RBC Capital Markets Corp.

Judy Hong - Goldman Sachs

Eric Katzman - Deutsche Bank

Chris Growe - Stifel Nicolaus



Good morning and welcome to the Kellogg Company fourth quarter and full year 2009 earnings conference call. (Operator's Instructions).

At this time I will turn the call over to Kathryn Koessel, Kellogg Company Vice President of Investor Relations. Ms. Koessel, you may begin your conference.

Kathryn Koessel

Thank you, Christina. Good morning, thank you for joining us today and welcome to the review of our 2009 fourth quarter and full-year results and a discussion of our ongoing strategy and outlook. Joining me are David Mackay, our President and CEO, John Bryant, Chief Operating Officer and Ronald Dissinger, Chief Financial Officer.

The press release and slides that support our remarks today are posted on our website at As you are aware, certain statements made today such as projections for Kellogg Company’s future performance, including earnings per share, net sales, margin, operating profit, interest expense, tax rate, cash flow, brand building, up-front costs, impact of the recalls and inflation are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the second slide of this presentation as well as to our public SEC filings.

As a reminder a replay of today’s conference call will be available by phone through Monday February 8th, the call will also be available via webcast which will be archived for 90 days.

Now let me turn it over to David.

A. D. David Mackay

Thanks, Catherine and good morning, everyone. We're pleased to report another strong year of sustainable, dependable performance of the Kellogg Company, our business model and focus strategy are helping us weather the tough consumer and customer environment and positioning us for growth now and well into the future despite the current economic backdrop. Our focus has been and will continue to be to sustainably grow the top-line, drive investment in our brands, build an effective and cost efficient infrastructure and consistently deliver solid results for the long-term.

As I said last quarter, and I think it bears repeating, 2009 is certainly presented us with challenges and yet at the same time, given us opportunities to build an even stronger Kellogg Company. The weaker global economic environment has lessened the inflationary pressure on pricing and increased distress level on consumers which has translated into moderating top-line growth. However, consumers are seeking ways to maximize value and trading into some of our core categories such as, cereal and markets like the U.S. and the U.K.

Consumers recognize that our brands recognize value great taste and good nutrition so that positions us well for the future, another benefit of the weaker economy is media deflation in key markets. As a result our increased investment and advertising has significantly grown our underlying impressions. On an internal basis, our advertising grew 15% in the back half of the year and nearly 7% for the full year.

As discussed at our (inaudible) and on previous earnings calls, we've been focusing on improving productivity and reducing costs. We completed the first year of our three year billion dollar plus cost reduction program. In 2009 we exceeded our expectations in cost savings, now adding a plus to the billion dollar challenge, the result? Strong earnings per share growth and record cash flow for 2009.

Benefiting from the 2009 momentum we enter 2010 with a solid pipeline of innovation and renovation as well as a renewed commitment to productivity and cost savings. We continue to focus on building a Kellogg Company resilient to economic conditions and poised to forge ahead.

With excellent financial visibility into our future financial performance we remain confident in our ability to deliver another year of sustainable and dependable growth. And with that I'd now like to introduce our newly appointed CFO, Ron Dissinger for the review of financials. Ron, over to you.

Ron Dissinger

Thanks, David. Good morning, everyone. Let me begin with a summary of our 2009 financial results on slide four, as David said despite the challenges of a weak economy in a competitive landscape, we had a good year. We met and exceeded our 2009 guidance on growth rates of 3%-4% internal net sales, 8%-10% internal operating profit and 10%-12% currency neutral earnings per share.

In 2009, out internal net sales grew 3%, with strong operating profit growth at the top-end of our range. As you are aware our internal numbers exclude the effect of foreign exchange acquisitions and a 53rd week in 2008, our net sales growth reflects a particularly strong year in retail cereal and a solid year in retail snacks, which helped to off-set the pressures we experienced in our food severance business due to industry trends, and the supply disruption in our Eggo Waffle business.

We continue to invest in our brand and we've increased our up-front cost investments to $0.26 per share for the full-year compared with $0.14 per share in 2008. Our solid sales performance combined with our cost savings and our productivity initiatives as well as moderating commodity inflation drove 10% internal operating profit growth for the year. This resulted in our full-year 2009 earnings per share of $3.16 a 6% increase on a reported basis and a 13% increase on a currency neutral basis.

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