Kellogg Company (K)
Q4 2009 Earnings Call Transcript
February 4, 2010 9:30 a.m. ET

Executives

Kathryn Koessel – Vice President, Investor Relations
A. D. David Mackay – President and Chief Executive Officer
John A. Bryant – Chief Operating Officer
Ronald Dissinger – Chief Financial Officer

Analysts

Terry Bivens - J.P. Morgan
Robert Moskow - Credit Suisse
Cornell Burnette for David Driscoll - Citi Investments
David Palmer - UBS Investment Research
Alexia Howard - Sanford Bernstein
Ken Zaslow - BMO Capital Markets
Vincent Andrews - Morgan Stanley
Alex Patterson – RCM Capital Management
Edward Aaron - RBC Capital Markets Corp.
Judy Hong - Goldman Sachs
Eric Katzman - Deutsche Bank
Chris Growe - Stifel Nicolaus

Presentation

Operator

Good morning and welcome to the Kellogg Company fourth quarter and full year 2009 earnings conference call. (Operator''s Instructions) All lines have been placed in mute to prevent background noise. After the speaker’s remarks there will be a question-and-answer period. If you’d like to ask a question during this time simply press * and the number 1 on your telephone keypad. If you’d like to withdraw your question press 1. Please limit yourself to one question during the Q&A session. Thank you. At this time I will turn the call over to Kathryn Koessel, Kellogg Company Vice President of Investor Relations. Ms. Koessel, you may begin your conference.

Kathryn Koessel – Vice President Investor Relations

Thank you, Christina. Good morning, thank you for joining us today and welcome to the review of our 2009 fourth quarter and full-year results and a discussion of our ongoing strategy and outlook. Joining me are David Mackay, our President and CEO, John Bryant, Chief Operating Officer and Ronald Dissinger, Chief Financial Officer.

The press release and slides that support our remarks today are posted on our website at www.kelloggcompany.com. As you are aware, certain statements made today such as projections for Kellogg Company’s future performance, including earnings per share, net sales, margin, operating profit, interest expense, tax rate, cash flow, brand building, up-front costs, impact of the recall and inflation are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the second slide of this presentation as well as to our public SEC filings.

As a reminder, a replay of today’s conference call will be available by phone through Monday February 8th. The call will also be available via webcast which will be archived for 90 days.

Now let me turn it over to David. David?

A. D. David Mackay – Chief Executive Officer

Thanks, Kathryn and good morning, everyone. We''re pleased to report another strong year of sustainable, dependable performance of the Kellogg Company. Our business model and focused strategy are helping us weather the tough consumer and customer environment and positioning us for growth now and well into the future despite the current economic backdrop. Our focus has been and will continue to be to sustainably grow the top-line, drive investment in our brands, build an effective and cost efficient infrastructure and consistently deliver solid results for the long-term.

As I said last quarter, and I think it bears repeating, 2009 has certainly presented us with challenges and yet at the same time, given us opportunities to build an even stronger Kellogg Company. The weaker global economic environment has lessened the inflationary pressure on pricing and increased distress level on consumers which has translated into moderating top-line growth. However, consumers are seeking ways to maximize value and trading into some of our core categories such as, cereal in markets like the U.S. and the U.K. Consumers recognize that our brands represent value, great taste and good nutrition so that positions us well for the future. Another benefit of the weaker economy is media deflation in key markets. As a result our increased investment in advertising has significantly grown our underlying impressions. On an internal basis, our advertising grew 15% in the back half of the year and nearly 7% for the full year.

As discussed at our Investor Day and on previous earnings calls, we''ve been focusing on improving productivity and reducing costs. We completed the first year of our three year billion dollar plus cost reduction program. In 2009 we exceeded our expectations in cost savings, now adding a plus to the billion dollar challenge. The result? Strong earnings per share growth and record cash flow for 2009. Benefiting from the 2009 momentum we enter 2010 with a solid pipeline of innovation and renovation as well as a renewed commitment to productivity and cost savings. We continue to focus on building a Kellogg Company resilient to economic conditions and poised to forge ahead.

With excellent financial visibility into our future financial performance we remain confident in our ability to deliver another year of sustainable and dependable growth. And with that I''d now like to introduce our newly appointed CFO, Ron Dissinger for the review of financials, Ron, over to you.

Ron Dissinger – Chief Financial Officer

Thanks, David. Good morning, everyone. Let me begin with a summary of our 2009 financial results on slide four. As David said despite the challenges of a weak economy and a competitive landscape, we had a good year. We met and exceeded our 2009 guidance on growth rates of 3% to 4% internal net sales, 8% to 10% internal operating profit and 10% to 12% currency neutral earnings per share.