February 6, 2020 – Kellogg Company (NYSE: K) today announced fourth-quarter and full-year 2019 results and provided a financial outlook for 2020.
Highlights:
- The Company delivered full-year net sales growth on a reported and organic basis.
- The Company’s results finished the year within or better than its guidance ranges for each of its key metrics: Currency-neutral net sales, currency-neutral adjusted operating profit, currency-neutral adjusted earnings per share, and cash flow.
- The divestiture of non-core businesses in late July enhances the long-term focus, profitability, and underlying growth of the Company’s portfolio, while the absence of their results caused a decline in reported net sales and operating profit in the fourth quarter and the second half of the year.
- In the fourth quarter, the Company sustained its return to organic-basis net sales growth, featuring broad-based growth and improved balance between volume and price.
- Productivity actions, revenue growth management, and savings from organizational restructurings progressively delivered savings throughout the year.
- Kellogg issued guidance¹ for 2020 that calls for sustained organic net sales growth, improved cash flow, and currency-neutral adjusted operating profit and earnings per share growth excluding the impact of its recent divestiture.
“In 2019, our primary financial objective was to deliver sales growth, and we did exactly that,” said Steve Cahillane, Kellogg Company’s Chairman, and Chief Executive Officer. “By executing our Deploy For Growth strategy, we posted sales growth for the full year, across key brands and categories. Importantly, we delivered this growth and our other financial commitments while realigning our organizational structure, reshaping our portfolio, and investing in our supply chain. These actions are building a foundation for a steady, reliable growth in sales, profit, and cash flow for years to come.”
Fourth Quarter & Full Year 2019 Consolidated Results
Kellogg’s fourth-quarter 2019 GAAP (or “reported”) net sales decreased by approximately 3% year on year. The absence of results from divested businesses reduced net sales in the quarter by nearly 6%. On an organic basis, net sales increased by nearly 3%.
Full-year reported net sales increased by less than 1% year on year, as the absences of results from divested businesses and adverse currency translation were more than offset by improved organic growth and the May 2018 consolidation of Multipro, the company’s distributor in West Africa. On an organic basis, net sales increased by nearly 2%.
Fourth-quarter 2019 reported operating profit increased slightly less than 11% versus the prior-year quarter as a decrease in one-time charges more than offset the absence of results from divested businesses. Adjusted and currency-neutral adjusted operating profit declined by almost 7%, as growth in the base business was more than offset by the absence of results from divested businesses.
Full-year reported operating profit decreased approximately 18% year on year due to the absence of results from divested businesses and higher one-time charges. On an adjusted basis, operating profit declined by approximately 6% due to the absence of results from divested businesses and cost pressures.
Excluding currency translation, adjusted operating profit declined by less than 5%.
Fourth-quarter 2019 reported earnings per share improved year over year as lower mark-to-market charges were partially offset by increased one-time charges and the absence of results from divested businesses. On an adjusted and currency-neutral adjusted basis, earnings per share were in line with the year-ago quarter as lower net interest expense, higher other income, and lower diluted shares outstanding largely offset the absence of results from divested businesses.
Full-year reported earnings per share decreased approximately 27% from the prior year as higher one-time charges and the absence of results from divested businesses were partially offset by lower mark-to-market charges. On an adjusted basis, earnings per share declined approximately 9% on cost pressures, the absence of results from divested businesses, and adverse foreign currency translation. Excluding currency translation, adjusted earnings per share declined by less than 8%.
Fourth Quarter and Full Year 2019 Business Performance
Kellogg Company’s primary financial objective in 2019 was to deliver net sales growth through the execution of its Deploy For Growth strategy, and building on the brand revitalization and capabilities enhancements in which it had invested heavily in 2018. In addition, during 2019, the Company undertook a comprehensive reorganization across the globe, aimed at improving the speed of decision-making and agility in resource allocation. It also completed the divestiture of several businesses (cookies, fruit snacks, pie crusts, and ice cream cones) in order to create a greater focus on its core categories and improve the overall growth and profitability of its portfolio. By prioritizing debt reduction, the Company improved its financial flexibility in 2019, after having made several strategic acquisitions in recent years.
Principally because of the absence of results from businesses divested in July 2019, Kellogg Company’s reported net sales in the fourth quarter declined and were up only slightly for the full year. On an organic basis, net sales grew year on year both in the quarter and the full year, tangible evidence that its Deploy For Growth strategy is working. Meanwhile, the Company progressively delivered savings throughout the year from productivity actions, revenue growth management, and savings from organizational restructurings.
Kellogg North America’s reported net sales in the fourth quarter declined by 7% primarily due to the absence of results from divested businesses. On an organic basis, net sales improved by over 1%. In snacks, reported net sales declined because of the absence of results from divested businesses, while organic net sales growth was supported by sustained consumption growth momentum for Cheez-It, Pringles, Rice Krispies Treats, and Pop-Tarts, as well a return to growth for Club crackers and Nutri-Grain wholesome snacks. Frozen foods net sales and consumption growth continued in the fourth quarter, led by the Company’s leading brand of frozen plant-based meat alternatives, MorningStar Farms, which again grew consumption at a double-digit rate, while gaining share. In cereal, net sales and consumption declines moderated as its growth and share gains accelerated in the taste-fun segment, led by key brands Frosted Flakes, Froot Loops, Corn Pops, and Krave behind the increased commercial activity. Kellogg North America’s fourth-quarter operating profit increased owing primarily to lower one-time charges. On an adjusted basis, operating profit declined 5%, as growth in the base business was more than offset by the absence of results from divested businesses.
For the full year, Kellogg North America’s net sales declined 3% primarily due to the absence of results from divested businesses. On an organic basis, net sales were up slightly year on year, as growth in snacks and frozen foods were partially offset by a decline in cereal, where commercial activity had been reduced in the first half, as the Company executed a pack-size harmonization. Full-year Kellogg North America’s reported operating profit declined 13% due to higher one-time charges and the absence of results from divested businesses. On an adjusted basis, operating profit declined by 5% in 2019, primarily reflecting the absence of results from divested businesses and cost pressures.
Kellogg Europe’s reported net sales in the fourth quarter increased by about 3%, with foreign currency translation only modestly negative. On an organic basis, net sales increased by more than 3%, again led by snacks, and particularly the sustained consumption growth momentum for Pringles. Cereal net sales continued to stabilize, led by overall consumption growth in the Region. Kellogg Europe’s reported operating profit improved by 43% in the fourth quarter, primarily due to lower one-time charges. On a currency-neutral adjusted basis, operating profit improved 15% on the improved net sales and profit margins.
For the full year, Kellogg Europe’s reported net sales declined by over 1%, due to adverse foreign currency translation. On an organic basis, net sales increased by over 3%, led by Pringles growth momentum and continued expansion in Russia and Central Europe. Cereal net sales stabilized, with a return to overall regional consumption growth in the second half of the year. Full-year reported operating profit declined 11% due to increased one-time charges, and adverse foreign currency translation. On a currency-neutral adjusted basis, operating profit increased by 5% on higher net sales.
Kellogg Latin America’s reported net sales in the fourth quarter decreased by approximately 2% due to the absence of results from divested businesses and adverse foreign currency translation. On an organic basis, net sales growth was slightly positive, less than 1%, held back by softened macroeconomic conditions in Puerto Rico, Argentina, and Brazil, along with distributor transitions in Central America. These headwinds were more than offset by continued consumption growth in Mexico, across cereal, salty snacks, and portable wholesome snacks, stabilization in the Andean markets, and share gains in key categories in Brazil. Notable in the quarter was the ramp-up of new production facilities in Brazil, for Pringles and for cereal, which created incremental costs in the quarter but should benefit the sales and profit performance for this key market in the future. Kellogg Latin America’s reported operating profit declined by 27% in the fourth quarter, reflecting costs related to the ramp-up of new production and adverse currency translation; on a currency-neutral adjusted basis, operating profit declined by 21%, reflecting costs related to the ramp-up of new production and distribution, category mix, and the absence of results from divested businesses.
For the full year, Kellogg Latin America’s reported net sales declined by less than 1% primarily from adverse currency translation. On an organic basis, net sales increased by 3%, led by Mexico, where the Company’s consumption and share grew across all three major categories (cereal, salty snacks, portable wholesome snacks), and Mercosur, where consumption and share gains across categories in Brazil more than offset challenging conditions in Argentina. Kellogg Latin America’s full-year reported operating profit declined by 17%, due to higher one-time charges, increased investment in capabilities, and higher costs related to ramping up new production facilities. On a currency-neutral adjusted basis, operating profit declined 10%, reflecting increased investment in capabilities and higher costs related to ramping up new production facilities.
Kellogg Asia Pacific, Middle East and Africa’s (“AMEA”) reported net sales in the fourth quarter increased by more than 8%, with organic-basis growth of over 8%. Growth was led by Africa, on the expansion of Pringles and noodles, and continued growth by Multipro, the Company’s distributor business in West Africa, in spite of challenging market conditions. Asia growth was driven by cereal and snacks, and in Australia, growth was driven by consumption growth in both Pringles and cereal. The Company continued to ramp up new production in a Pringles plant in South Africa, as well as new noodles capacity in Egypt and South Africa, incurring incremental costs, but facilitating long-term growth into the future. Kellogg AMEA’s reported operating profit increased by 2% in the fourth quarter, as lower one-time charges were partially offset by other cost pressures in the Region and adverse currency translation. On a currency-neutral, adjusted basis, the Region’s operating profit declined by approximately 7% in the quarter, held down by the ramp-up of production expansions and other cost pressures in the region.
For the full year, Kellogg AMEA’s reported net sales increased by over 20%, aided by a full year of results from Multipro, the Company’s distributor business in West Africa, that was consolidated in May 2018, and partially offset by adverse foreign currency translation. On an organic basis, net sales increased by over 7% for the full year, driven by the continued growth of the Multipro distributor business in West Africa, expansion of Kellogg’s branded noodles in Africa and the Middle East, and broad-based consumption growth for Pringles and cereal across Asia and Australia. The Region’s reported operating profit increased 12% for the full year, largely attributable to the increased net sales, partially offset by other cost pressures in the Region and adverse foreign currency translation. On a currency-neutral, adjusted basis, operating profit increased by 14%, driven by organic net sales growth and the inclusion of a full year of results of Multipro.
2020 Full-Year Financial Guidance
The Company issued its initial financial guidance for 2020. Specifically, the Company is projecting:
- Organic net sales to increase by +1-2%.
- Adjusted operating profit on a currency-neutral basis is expected to decline (4)%, as the absence of results from divested businesses more than offsets growth in the base business.
- Adjusted earnings per share, on a currency-neutral basis, is expected to decline (3) to (4)%, as the absence of results from divested businesses more than offsets growth in the base business.
- Cash flow is expected to improve to $0.9 to $1.0 billion.
