Kellogg Company Reports Third Quarter 2016 Results

BATTLE CREEK, Mich., Nov. 1, 2016 /PRNewswire/ -- Kellogg Company announced third-quarter 2016 results, updated its earnings outlook for 2016, and reiterated its plans and progress toward improved profit margins for 2017. 

"Our third quarter earnings exceeded our expectations, on the strength of good operating margin expansion and a favorable tax rate," said John Bryant, Kellogg Company's chairman and chief executive officer. "Our sales were affected by trade-inventory reductions in U.S. cereal, a challenging U.K. market, and portfolio transformations that have taken longer than anticipated to execute.  However, we did realize growth in U.S. Snacks, U.S. Specialty Channels, Latin America, and Asia-Pacific, and every Region posted operating-profit margin expansion.  Most importantly, we continued to make progress against priorities that will enable improved performance in Q4 and in 2017." 

Q3 Results: 

• Currency-neutral comparable operating profit and earnings were ahead of the Company's expectations in the third quarter. 
• Kellogg's Q3 2016 GAAP (or "reported") earnings per share were up 41% from the prior-year quarter, driven mainly by decreased one-time costs, higher profit margins, and a lower effective tax rate. Non-GAAP, comparable earnings per share were up 13% from the year-earlier quarter, despite the negative impact of currency translation. Non-GAAP, currency-neutral comparable earnings increased by nearly 18% year-on-year, and ahead of the Company's expectations, owing primarily to better profit-margin expansion across all Regions and a lower effective tax rate. 
• Quarterly reported operating profit increased sharply due to lower one-time costs, as well as to profit-margin expansion across all Regions. Currency-neutral comparable operating profit increased because of the profit-margin benefit of efficiencies in SG&A expenses, reflecting the impact of Zero-Based Budgeting. 
• Third-quarter 2016 reported net sales decreased, led by adverse currency translation, while currency-neutral comparable net sales declined because of trade-inventory reductions in U.S. cereal, softness in U.K. cereal, and portfolio transitions in our U.S. Frozen and Kashi businesses. 

Q3 Business Performance*: 

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

• The Company continued to make progress on its 2016 priorities, including improving currency-neutral comparable basis operating profit margins across every Region, through various productivity initiatives; gaining share in U.S. cereal; improving performance in U.S. Snacks; generating good emerging-markets growth; and growing Pringles globally. 
• Kellogg North America's net sales declined on a reported and currency-neutral comparable basis, but reported and currency-neutral comparable operating profit increased on the strength of cost savings under the Project K and Zero-Based Budgeting initiatives. 

• The U.S. Morning Foods segment posted a net sales decline on both a reported and currency-neutral comparable basis, but it improved its category share, led by its six core cereal brands and Pop-Tarts. On both a reported and currency-neutral comparable basis, the segment's operating profit margin again improved strongly, driving operating profit growth in the quarter. 
• The U.S. Snacks segment posted flat net sales on both a reported and currency-neutral comparable basis, an improvement in trend led by core brands like Cheez-It, Pringles, and Rice Krispies Treats, each of which grew consumption. On both a reported and currency-neutral comparable basis, the segment posted another quarter of strong operating profit margin expansion, leading to operating profit growth in the quarter. 
• The U.S. Specialty Channels segment posted increases in reported and currency-neutral comparable net sales in the quarter, with growth in key brands and channels. On both a reported and currency-neutral comparable basis, the segment increased its operating profit margin, growing operating profit in the quarter. 
• The North America Other segment, which is comprised of the U.S. Frozen Foods, Kashi, and Canadian businesses, posted a decrease in reported and currency-neutral comparable net sales, due to the volume impact of price increases in Canada, and continued impacts of portfolio rationalization and food and packaging transitions in Frozen Foods and Kashi. On a reported and currency-neutral comparable basis, the net sales decline pulled down the segment's operating profit in the quarter. 

• Kellogg Europe posted a decrease in reported net sales, driven primarily by adverse currency translation, while currency-neutral comparable net sales decreased slightly. The decline was due to lower sales in the U.K., where we continue to face a challenging retailer environment. This more than offset broad-based growth elsewhere in the Region, led by improving share trends in cereal and continued growth in Pringles. Both on a reported and currency-neutral comparable basis, Europe improved its operating profit margins, which drove an increase in operating profit in the quarter. 
• In Latin America, reported net sales decreased due to adverse currency translation, while currency-neutral comparable net sales increased strongly because of inflationary Venezuela; currency-neutral comparable net sales also increased outside of Venezuela, led by gains in Mexico and Brazil, even amidst difficult economic conditions across the region. On a reported and currency-neutral comparable basis, both with and without Venezuela, Latin America improved its operating profit margin, driving strong operating profit growth in the quarter. 
• Reported and currency-neutral comparable net sales in Asia Pacific increased, led by good growth across the region for Pringles. While not reported in our sales results, the joint ventures in China and West Africa continued to grow at a double-digit rate. On both a reported and currency-neutral comparable basis, Asia Pacific increased its operating profit margin, generating operating profit growth in the quarter. Full report.