Kellogg 2007 earnings up 10%, affirms 2008 guidance

by Ron Sterk
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BATTLE CREEK, MICH. – Kellogg Company reported net earnings for fiscal 2007 of $1,103 million, up 10% from $1,004 million a year earlier, although fourth-quarter earnings slipped 3% from the same period a year ago.

Kellogg said it expects 2008 earnings will range from $2.92 to $2.97 per share. The projection includes commodity and energy cost inflation at "unprecedented" levels and continued investment in advertising and innovation. Kellogg increased advertising to more than $1,000 million for the first time in 2007.

"We remain confident in our business model and operating principles," said David Mackay, Kellogg’s chief executive officer. "Our significant investments back into the business provide us with momentum going into 2008.

"To partially offset the continued cost inflation, we have increased prices and pursued various productivity initiatives. Looking ahead, our focused strategy, business model and superior execution give us confidence in our ability to deliver sustainable, dependable growth in 2008 and beyond."

Net earnings per diluted share for fiscal 2007 were $2.76 compared with $2.51 in fiscal 2006 and represented the sixth consecutive year that Kellogg has met or exceeded its long-term e.p.s. targets, the company said. Net sales for the year, ended Dec. 29, 2007, were $11,776 million, up 8% from $10,907 million in 2006.

Gross margin for 2007 was 44%, about 30 percentage points lower than in 2006.

"Incremental increases in fuel, energy, commodity and benefit costs adversely impacted earnings by 32c per share," the company said.

"Despite significant additional cost pressures in 2007, our company posted another year of strong growth," Mr. Mackay said.

Fourth-quarter net earnings were $176 million, or 44c per diluted share, compared with $182 million, or 45c per share, in the fourth quarter of fiscal 2006. Net sales for the fourth quarter were $2,794 million, up 8% from $2,584 million in the same period a year earlier.

Fourth-quarter results included a double-digit increase in advertising, significantly higher commodity, fuel, energy and benefit cost inflation and up-front investment charges of 3c per share compared with 8c in 2006, the company said. In addition, Kellogg recently announced acquisitions related to Bear Naked, Inc., Gardenburger brand in the United States and The United Bakers Group in Russia.

Kellogg North America had net sales growth of 6% in 2007. North America Retail Cereal posted internal sales growth of 3% for the year, Retail Snacks increased by 7% and Frozen and Specialty Channels were up 6%. Kellogg International had net sales growth of 12% in fiscal 2007.

Kellogg is the world’s leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles and meat alternatives. Kellogg products are manufactured in 18 countries and marketed in more than 180 countries.

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