Kellogg Company (K) (NYSE: K) today announced third-quarter 2016 results, updated its earnings outlook for 2016, and reiterated its plans and progress toward improved profit margins for 2017.
«Our third quarter earnings exceeded our expectations, on the strength of good operating margin expansion and a favorable tax rate,» said John Bryant, Kellogg Company’s chairman and chief executive officer. «Our sales were affected by trade-inventory reductions in U.S. cereal, a challenging U.K. market, and portfolio transformations that have taken longer than anticipated to execute. However, we did realize growth in U.S. Snacks, U.S. Specialty Channels, Latin America, and Asia-Pacific, and every Region posted operating-profit margin expansion. Most importantly, we continued to make progress against priorities that will enable improved performance in Q4 and in 2017.»
* All guidance and goals expressed in this press release are on a currency-neutral comparable basis. Expected net sales, margins, operating profit, operating profit margin and earnings per share are provided on a non-GAAP, currency-neutral comparable basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.
Currency-neutral comparable operating profit and earnings were ahead of the Company’s expectations in the third quarter.
Kellogg’s Q3 2016 GAAP (or «reported») earnings per share were up 41% from the prior-year quarter, driven mainly by decreased one-time costs, higher profit margins, and a lower effective tax rate. Non-GAAP, comparable earnings per share were up 13% from the year-earlier quarter, despite the negative impact of currency translation. Non-GAAP, currency-neutral comparable earnings increased by nearly 18% year-on-year, and ahead of the Company’s expectations, owing primarily to better profit-margin expansion across all Regions and a lower effective tax rate.
Quarterly reported operating profit increased sharply due to lower one-time costs, as well as to profit-margin expansion across all Regions. Currency-neutral comparable operating profit increased because of the profit-margin benefit of efficiencies in SG&A expenses, reflecting the impact of Zero-Based Budgeting.
Third-quarter 2016 reported net sales decreased, led by adverse currency translation, while currency-neutral comparable net sales declined because of trade-inventory reductions in U.S. cereal, softness in U.K. cereal, and portfolio transitions in our U.S. Frozen and Kashi businesses.
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