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Kellogg Cuts FY12 Forecast As Weak Europe Hurts Q1 - Update


Kellogg Co. (K) on Monday lowered its outlook for 2012, citing weaker-than-expected performance in the first quarter. The cereal maker said the decline was driven by its European business, initial weak volume growth in certain U.S. categories and the desire to continue to invest in future growth.

In the first quarter, Kellogg's reported earnings were $1.00 per share, flat with last year. The results benefited by $0.05 from hedges related to the pending acquisition of the Pringles business. Kellogg is buying Procter & Gamble Co.'s (PG) Pringles snack business for $2.7 billion in cash.

On average, 19 analysts polled by Thomson Reuters expected earnings of $0.99 per share for the quarter. Analysts' estimates typically exclude special items.

Kellogg said its reported net sales slipped 1.3 percent in the quarter. Internal net sales, which exclude the impact of foreign exchange translation and the impact of acquisitions and divestitures, were nearly unchanged from last year. Analysts expected revenues of $3.60 billion for the quarter.

Reported operating profit decreased by 6.5 percent and internal operating profit declined by 6.1 percent in the first quarter.

Kellogg president and CEO John Bryant said, "We are obviously disappointed with the performance of the company in the first quarter of 2012. We faced more significant challenges in both Europe and in some categories in the U.S. than we expected. We have recognized and are addressing these issues, and have provided revised guidance that allows us to continue to invest in the business."

The company now expects full-year internal net sales to increase at a rate between 2 and 3 percent. Full-year internal operating profit is expected to decrease at a rate of 2 to 4 percent owing to the slower sales growth and continued investment in the business.

As a result, Kellogg expects reported earnings, which include the expected impact of the acquisition of Pringles, will be in a range of $3.18 to $3.30 per share. The acquisition is estimated to lower earnings per share by $0.06 to $0.11 per share, including the benefit from the hedges. The company earned $3.38 per share in 2011.

Kellogg's previous forecast was for internal net sales growth of 4 to 5 percent and full-year currency-neutral earnings per share growth of between 2 and 4 percent prior to Pringles acquisition. The company was expecting the acquisition to be dilutive to earnings by $0.11 to $0.16 per share, including one-time costs and changes to the share buy-back plan.

Kellogg said in February that if the Pringles transaction closes on or around June 30, the deal will be accretive to adjusted earnings in 2012 by between $0.08 and $0.10 per share.

Analysts expect the company to report earnings of $3.48 per share, on revenues of $13.98 billion for the year.

K, which closed at $53.99 on Friday, is losing 6.33 percent in pre-market trading.

by RTTNews Staff Writer

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