Kellogg Company (K) has posted better-than-expected second-quarter 2011 earnings of 94 cents per share, surpassing the Zacks Consensus Estimate of 91 cents. The earnings also increased 19% year over year from 79 cents delivered in the prior-year quarter. On a currency-neutral basis, the earnings in the reported quarter rose 13% year over year.
Kellogg’s results reflect robust first half top-line results. Moreover, the quarter was benefited by the improved net price realization and strong innovation, which also offset higher input prices.
Quarter in Detail
Total net sales for the quarter jumped 11% to $3.4 billion, which exceeded the Zacks Consensus Estimate of $3.3 billion. Operating profit soared 12% to $543 million. Excluding foreign currency translation, sales rose by 6% and operating profit surged 8%.
Kellogg North America sales increased 8% to $2.2 billion, both including and excluding the foreign currency translation. North America Retail Cereal and Retail Snacks posted sales growth of 13.0% and 3%, respectively, excluding foreign currency translation.
The Frozen and Specialty Channels businesses revenue jumped 10%. Operating profit in North America surged 12% to $406 million during the quarter, and 11% excluding foreign currency translation.
Kellogg International sales jumped 16% to $1.2 billion, on the heels of net price realization and innovation. Excluding foreign currency translation, International sales grew 3% during the quarter, registering sales growth rates of 1% in Europe, 7% in Latin America and 4% in Asia-Pacific regions.
Operating profit climbed 12% to $188 million, whereas excluding foreign currency translation, operating profit was flat with the year-earlier quarter as recent price increases helped offset the impact of higher input costs.
Kellogg's interest expense was $53 million for the quarter and the effective tax rate was 30.1%.
Capital Structure
The company ended the quarter with cash and cash equivalents of $457 million, total long-term debt of $5.3 billion and shareholders’ equity of $2.5 billion. Kellogg generated free cash flow of $403 million in the first half of 2011.
Kellogg also repurchased nearly $190 million of shares during the second quarter of 2011, and more than $500 million in the first half of 2011, under its $2.5 billion three-year share repurchase authorization.
Guidance
Following the earnings results, Kellogg increased its full-year 2011 internal net sales growth guidance to a range of 4% to 5%. The increased net sales outlook is expected to offset anticipated higher cost pressures.
The company reiterated its 2011 internal operating profit guidance of approximately flat to down 2% year over year.
Kellogg also reaffirmed its full-year 2011 guidance of currency-neutral earnings per share growth in the low single-digit range. Assuming no foreign exchange impact, this implies earnings per share in the range of $3.33 to $3.40.
Further, the company estimates a foreign exchange benefit of approximately 9 cents per share, which would result in reported 2011 EPS of $3.42 to $3.49.
Headquartered in Battle Creek, Michigan, Kellogg engages in manufacture and marketing of ready-to-eat cereal and convenience foods. General Mills, Inc. (GIS) and Ralcorp Holdings Inc. (RAH) are its competitors.
Currently, Kellogg holds a Zacks #2 Rank, translating into a short-term Buy rating. On a long-term basis, we maintain a Neutral recommendation on the stock.
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