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Kellogg Company Reports Earnings Per Share At The High End Of Guidance For 2012 And Reaffirms Guidance For 2013 Growth

Stocks in this article: K

Reported operating profit (which includes the impact of the accounting change) was $3.0 million in the fourth-quarter of 2012 and $1.6 billion for the full year. Comparable internal operating profit, which excludes the impact of changes to the accounting for pensions and post-retirement plans, the effects of foreign currency translation, acquisitions, divestitures and integration costs declined by 7.6 percent. This decline was the result of continued inflation in cost of goods sold, a double-digit increase in investment in brand building, and the timing of up-front costs. Full-year comparable internal operating profit declined by 5.9 percent. This decline was as anticipated and resulted from continued high-levels of inflation in cost of goods sold, a limited recall in the third quarter of 2012, and increased investment in brand building.

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts – Reported Operating Profit to Underlying Operating Profit
         
(millions) Quarter ended Year-to-date period ended
  December 29, 2012 December 31, 2011 (a) December 29, 2012 December 31, 2011 (a)
         
Reported Operating Profit  $ 2.9  $ (237.9)  $ 1,561.8  $ 1,427.0
Mark-to-market (b)  (401.3)  (664.4)  (451.9)  (681.7)
Adjusted Operating Profit (c)  $ 404.2  $ 426.5  $ 2,013.7  $ 2,108.7
Impact of Changes to Pension Accounting (d)  19.2  30.0  129.3  132.7
Comparable Operating Profit before Accounting Change (e)  $ 385.0  $ 396.5  $ 1,884.4  $ 1,976.0
Pringles Integration costs   (27.0)  --   (76.8)  -- 
Underlying Operating Profit (f)  $ 412.0  $ 396.5  $ 1,961.2  $ 1,976.0
         
(a) Financial results for the quarter and year-to-date periods ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefits accounting.
(b) Actuarial gains/losses are recognized in the year they occur. In 2012, asset returns exceeded expectations but discount rates fell almost 100 basis points resulting in a net loss. The loss in 2011 resulted from actual asset returns being less than expected and a decline in discount rates.
(c) Adjusted Operating Profit is a non-GAAP measure that excludes the impact of pension and post-retirement benefits mark-to-market entries and will act as the 2012 base for future comparisons.
(d) Primarily amortization of actuarial gains and losses not included in reported amounts. This adjustment is necessary to provide visibility into comparable operating profit (non-GAAP).
(e) Comparable Operating Profit calculated to correspond to previously provided guidance and is a non-GAAP measure.
(f) Underlying Operating Profit (non-GAAP) eliminates the impact resulting from the adoption of new pension and post-retirement benefits accounting and the impact of integration costs related to the Pringles business. 

Reported earnings (which include the impact of the accounting change) were $(0.09) per share in the fourth quarter and $2.67 per share for the full year. Earnings per share were impacted by changes in the accounting for pension and post-retirement benefit plans. Full-year comparable earnings before accounting change (non-GAAP) were $3.28 per share, a decrease of 3 percent from full-year 2011 earnings of $3.38 per share. Excluding net integration costs related to the acquisition of Pringles, full-year underlying earnings (non-GAAP) were $3.37 per share, a decrease of 0.3 percent from the full-year results posted last year. Foreign currency translation lowered full-year earnings by $0.06 per share and had no impact on the fourth quarter's earnings per share.

Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts – Reported EPS to Underlying EPS
         
  Quarter ended Year-to-date period ended
  December 29, 2012 December 31, 2011 (a) December 29, 2012 December 31, 2011 (a)
         
Reported EPS  $ (0.09)  $ (0.54)  $ 2.67  $ 2.38
Mark-to-market (b)  (0.74)  (1.25)  (0.85)  (1.24)
Adjusted EPS (c)  $ 0.65  $ 0.71  $ 3.52  $ 3.62
Impact of Changes to Pension Accounting (d)  0.03  0.07  0.24  0.24
Comparable EPS before Accounting Change (e)  $ 0.62  $ 0.64  $ 3.28  $ 3.38
Pringles Integration costs (net of one-time benefits)  (0.05)  --   (0.09)  -- 
Underlying EPS (f)  $ 0.67  $ 0.64  $ 3.37  $ 3.38
         
(a) Financial results for the quarter and year-to-date periods ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefits accounting.
(b) Actuarial gains/losses are recognized in the year they occur. In 2012, asset returns exceeded expectations but discount rates fell almost 100 basis points resulting in a net loss. The loss in 2011 resulted from actual asset returns being less than expected and a decline in discount rates.
(c) Adjusted EPS is a non-GAAP measure that excludes the impact of pension and post-retirement benefits mark-to-market entries and will act as the 2012 base for future comparisons.
(d) Primarily amortization of actuarial gains and losses not included in reported amounts. This adjustment is required to provide visibility into comparable EPS (non-GAAP).
(e) Comparable EPS calculated to correspond to previously provided guidance and is a non-GAAP measure.
(f) Underlying EPS (non-GAAP) eliminates the impact resulting from the adoption of new pension and post-retirement benefits accounting and the impact of integration costs net of one-time benefits related to the Pringles business. 

"Kellogg Company delivered strong performance in the fourth quarter, continuing the sequential improvement we've seen all year," said John Bryant, Kellogg Company's president and chief executive officer. "We met our goals for full-year internal sales, operating profit and earnings per share growth and we made significant investment in future growth. In addition, the Pringles acquisition is an excellent strategic fit and provides significant opportunity in our snacks business across the globe."

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