Cost saving initiatives boost Kellogg first-quarter profit

by Eric Schroeder
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BATTLE CREEK, MICH. — A strong focus on cost savings helped The Kellogg Co. overcome lower sales and charges associated with peanut-related recalls to post a 2% gain in net income during the first quarter. Net income in the first quarter ended April 4 totaled $319 million, equal to 84c per share on the common stock, up from $315 million, or 82c per share, in the same period a year ago. Kellogg said the most recent quarterly results included a 5c-per-share impact due to the cost of the peanut-related recalls.

Net sales were $3,169 million, down 3% from $3,258 million a year ago.

"By remaining focused on our business model and strategy, we performed ahead of our expectations during the first quarter despite cost pressures and the difficult economic environment," said David Mackay, chief executive officer. "We also continue to focus on cost-savings initiatives and reinvestment for the future. We now plan to increase our up-front cost investments to achieve our ambitious $1 billion savings target."

Operating profit at Kellogg North America held steady at $403 million while net sales rose 3% to $2,211 million.

Retail Cereal posted internal sales growth of 6%, while Retail Snacks had sales growth of 2%. The North America Frozen and Specialty Channels posted internal net sales growth of 6%.

At Kellogg International, net sales fell 14%, although on an internal basis — which excludes the effects of currency translation and acquisitions — net sales grew 4%. The Asia Pacific region posted internal sales growth of 11%, the Latin American region gained 8% and Europe rose 1%.

Operating profit at Kellogg in the first quarter eased 3% to $529 million, down from $545 million in the same period a year ago.

Looking forward, Kellogg reaffirmed its full-year guidance of 3% to 4% internal sales growth and mid single-digit internal operating profit growth. The guidance includes a 6c-per-share charge from the peanut-related recall and in increase in up-front charges for cost reduction initiatives of between 14c and 22c per share.

"Our strong start increases our visibility with respect to another year of sustainable and dependable performance," Mr. Mackay said. "For 2009, we will focus on driving solid top-line growth, considerable cost savings and strong reinvestment."

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