Kellogg Company Reports Operating Results (10-Q)

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May 07, 2009
Kellogg Company (K, Financial) filed Quarterly Report for the period ended 2009-04-04.

Kellogg Company is the world's leading producer of cereal and a leading producer of convenience foods including cookies crackers toaster pastries cereal bars frozen waffles meat alternatives pie crusts and ice cream cones. The company's brands include Kellogg's Keebler Pop-Tarts Eggo Cheez-It Nutri-Grain Rice Krispies Murray Austin Morningstar Farms Famous Amos Carr's Plantation Ready Crust and Kashi. Kellogg products are manufactured in 19 countries and marketed in more than 160 countries around the world. Kellogg Company has a market cap of $16.43 billion; its shares were traded at around $43 with a P/E ratio of 13.9 and P/S ratio of 1.3. The dividend yield of Kellogg Company stocks is 3.2%. Kellogg Company had an annual average earning growth of 7% over the past 10 years. GuruFocus rated Kellogg Company the business predictability rank of 5-star.

Highlight of Business Operations:

For the quarter ended April 4, 2009, we recorded $4 million of charges in cost of goods sold for severance payments in the North America operating segment. As of April 4, 2009, we had reserve of $1 million for employee severance payments.

In addition to exit costs, we incurred additional charges related to our K LEAN cost reduction initiative for the quarter ended April 4, 2009. We incurred $15 million of costs for consulting recorded in cost of goods sold in the following operating segments (in millions): North America - $13, Europe - $1 and Latin America $1. Total project costs to date are $27 million and are recorded in cost of goods sold in the following operating segments (in millions): North America $25, Europe $1 and Latin America $1. The total cost and cash outlay for this program, excluding exit costs, is estimated to be $65 million. This project is expected to be substantially complete by the end of 2009.

For the quarter ended April 4, 2009, interest expense was $67 million and interest income (which is recorded within other income) was $1 million, as compared to the quarter ended March 29, 2008 with interest expense of $82 million and interest income of $5 million.

For the full year 2009, we expect gross interest expense to be approximately $270 to $275 million, compared to 2008s full year amount of $308. The forecasted decline is driven by lower short-term borrowing rates.

Other income (expense), net includes non-operating items such as interest income, charitable donations, foreign exchange gains and losses and costs related to commodity options. We recognized net foreign exchange gains of $6 million for the quarter ended April 4, 2009, as compared to losses of $7 million for the quarter ended March 29, 2008. The net foreign exchange gains for the first quarter of 2009 included $14 million of gains on translational hedges. We are currently not entering into translational hedges.

Our pension and postretirement benefit plan contributions amounted to $74 million and $41 million for the year-to-date periods ended April 4, 2009 and March 29, 2008, respectively. During the remainder of 2009, we currently project that we will make additional contributions to pension and postretirement plans totaling $25 million. Our actual contributions for 2009 could be different from this projection, since contribution levels may change as a result of changes in regulatory requirements or our decision to undertake discretionary funding of our benefit trusts versus other competing investment priorities.

Read the The complete ReportK is in the portfolios of Ken Heebner of CAPITAL GROWTH MANAGEMENT LP, Robert Bruce of Bruce & Co., Inc..