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Market Update : 
Kellogg Company Q4 Earnings Call Transcript
Author: 123jump.com Staff
123jump.com
Last Update: 1:28 AM ET February 16 2010


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Vincent Andrews - Morgan Stanley

Okay, and then just lastly, on the Eggo piece. I just couldn''t remember what was in your guidance for the fourth quarter about that and was trying to understand whether it was better or worse than what you had sort of expected at all or sort of told us to expect.

A. D. David Mackay

We really didn''t get into a great deal of detail in the Q3 and as we went through Q4 we did see that we didn''t make the improvements on restoring the capacity that we were hoping to make, and that''s why for the quarter we saw net sales for the total company impacted about 1% to 2%. So that''s why we''re being a little bit more specific on it now having done a lot of work and actually having arrived at a perspective for what is likely for 2010.

Vincent Andrews - Morgan Stanley

Perfect, that''s very helpful. Thanks a lot.

A. D. David Mackay

Thanks.

Operator

And our next question comes from Alex Patterson out of RCM. Please state your question.

Alex Patterson – RCM

Just following up on Vincent''s questions about the frozen business, is it your expectation that once you have the capacity back where you wanted it that your business given your very large share in the category should sort of go back to where it was in prior periods?

A. D. David Mackay

We''ve been working very hard to actually try and get back to our prior capacity levels after we had the flood and we did some enhancements and repairs, and that created a bit of the disruption. It''s frustrating but we haven''t been able to get back there yet. So demand currently exceeds supply. So, we''re taking a pragmatic approach. We''re evaluating our industry plans. We''re going to work hard to increase capacity and we are looking to add capacity in Eggo, but that will probably take us a while. So we think 2010, it''s baked into our guidance. First half there''ll be an impact until we lap what was a relatively soft second half. And once we''re back to capacity then our expectation would be, the brand is very strong and we''ll see a gradual return to the prior levels but forecasting where exactly when that will be, Alex, I think is a bit premature.

Alex Patterson - RCM

Okay, so just so I understand. You''re forecasting that your capacity will be back online to normal levels by the middle of the year, roughly speaking.

A. D. David Mackay

More towards the end of the year, if we''re being pragmatic. We''d like to think mid-year but we''re taking the view that it may be later than that.

Alex Patterson - RCM

Okay, I understand now. So then on your gross margin outlook overall, you''ve got a cost of goods 3% outlook and then you''ve got a productivity that should probably exceed that, implying a good chunk of your gross margin increase of sorts. Does that sort of paint a picture of pricing environment where you expect to be able to be a little more, I don''t know, promotional as need be, or more volume oriented than necessarily price mix oriented?


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