Milling & Baking News - August 1, 2006 - 15

F I N A N C I A L

R E S U L T S

Kellogg profit climbs behind North
America, international growth
BATTLE CREEK, MICH. - Strong
growth in North America and internationally helped fuel a 3% gain in income
and 7% improvement in sales at The Kellogg Co. in the second quarter.
Net income in the second quarter ended
July 1 was $266.5 million, equal to 68c per
share on the common stock, up from $259
million, or 63c per share, in the same period
a year ago. Net sales were $2,773.9 million,
up from $2,587.2 million a year ago.
"The combination of our
focused strategy, good investment decisions
and
top-line
growth remain
the key enablers
of our strong
earnings performance," said Jim Jenness, chairman and chief executive officer.
"As we look at the business, our brand equities are strong, our innovation is working,
and we continue to invest for the long-term
health of our business, all of which gives us
continued confidence in the year."
Operating profit at Kellogg North
America eased 1% to $327 million despite a 9% gain in net sales to $1,859
million. Kellogg said sales growth was
driven by strength in the Retail Cereal,
Retail Snacks and Frozen and Specialty
Channels businesses.
Retail Cereal posted internal sales growth
of 4%, driven by strong growth in various
brands, including Kellogg's Frosted MiniWheats and Kashi brand cereals. The 4%
growth followed strong double-digit gains
in the second quarter of last year.
Commenting in a July 27 conference
call, David Mackay, president and chief

operating officer, elaborated on the success of North American retail cereal sales
during the quarter.
"We launched six new cereals at the
end of June: organic versions of Kellogg's
Rice Krispies, Kellogg's Raisin Bran and
Kellogg's Frosted Mini-Wheats, as well
as Peanut Butter Swirlz, Caramel Nut
Crunch and Eggo Cinnamon Toast," he
said. "And we are leveraging a great property to 'Pirates of the Caribbean' across all
of our North American businesses."
Mr. Mackay said Kellogg invested heavily behind its cereal business in the first
half of the year and plans to continue that
investment with "strong, impactful advertising" in the second half of the year.
The North America Retail Snacks business also posted good results, as internal
sales grew 11% behind growth in PopTarts, Cheez-It, Kellogg's wholesome
snacks and fruit snacks, and cookies.
Talking specifically about cookies,
Mr. Mackay said that business grew low
single digits in the quarter and gained 40
basis points of share.
"The growth in the quarter was driven by the performance of Keebler Chips
Deluxe Fudge Stripes, Keebler Fudge
Shoppe, Murray Sugar Free and, again,
our 100 Calorie Packs," Mr. Mackay said.
"We recently launched two new Famous
Amos varieties, as well as Keebler Soft
Batch peanut butter cookies. We'll also
be launching Kashi TLC cookies in three
varieties later this quarter."
North America Frozen and Specialty Channels posted internal net
sales growth of 9% driven by doubledigit growth in Eggo and veggie foods,
strong retail acceptance of new Kashi
frozen entrees, and strong growth in
convenience and drug stores.

Brands, new routes lift Bimbo's U.S.
sales by 9% in quarter
MEXICO CITY - The brands Oroweat, Mrs
Baird's and Bimbo all advanced in sales as
Grupo Bimbo S.A. de C.V. reported U.S.
sales increased 9% in the second quarter
ended June 30. Sales of NP$4,042 million
($370.9 million) compared with NP$3,715
million ($340.9 million) in the previous
year's second quarter.
Mexico City-based Bimbo attributed the
U.S. growth to greater sales volume and
higher prices implemented in the first quarter of the year. The company continued to
expand the number of distribution routes
in the eastern region of the country and en16 / Milling & Baking News, August 1, 2006

hanced the product portfolio in each region
where it operates.
While giving second-quarter results July
26, Grupo Bimbo S.A. de C.V. reported
positive results in each region where the
company operates. Companywide, net second-quarter sales grew 10% to NP$14,049
million. Sales in Mexico also grew 10%, to
NP$9,594 million, thanks in part to the integration of El Globo and Chocolates La Corona as well as the recently acquired operations in China. The results from China were
incorporated into Mexico's results because
of the small scale of operations in China.

At Kellogg International, net sales
grew approximately 4%, or 5% excluding the effect of currency translation.
Operating profit at Kellogg in the second quarter fell 2% to $461.2 million,
down from $472.5 million in the same period a year ago. However, the company
said its internal operating profit growth,
which excludes the impact of foreign exchange and stock compensation, was up
1% in the first quarter.
"This growth was achieved despite
continued investments in brand building and innovation, as well as unprecedented increases in fuel, energy and
commodity costs," the company said.
"Up-front costs in the quarter were 3c
per share, the same as the second quarter of last year. The company continues
to forecast up-front costs for the full year
to be approximately 15c per share."
Kellogg said cash flow was $339.7 million
in the second quarter, down from $474.4
million last year, but ahead of company
expectations. The decline from the second
quarter of last year was primarily the result
of an increase in capital expenditures and
core working capital, Kellogg said.
Looking forward, Kellogg reiterated
its full-year earnings forecast of $2.45
to $2.49 per share. The earnings range
includes approximately 15c of up-front
costs and an estimate for stock option
costs of 10c per share for the full year.
The company said it now expects fuel,
energy and commodity costs to impact
full-year results by up to 30c per share,
an increase from the previous guidance
of up to 20c per share.
"We continue to have confidence in the
strength of our business model, in spite of
the input cost outlook," Mr. Jenness said.
"The strong results this quarter are a testament to the hard work of all the Kellogg employees around the world. Our confidence
continues that this will be another year of
sustainable, dependable growth." MBN

Companywide, net majority income
of NP$835 million in the second quarter
marked a 33% increase from NP$629 million in the previous year's second quarter.
Operating income and EBITDA registered
increases of 8% and 5%, respectively.
Although the gains reflected a decrease
in operating expenses, they did not entirely
offset the ongoing impact of higher prices
in raw materials such as wheat flour, sugar,
potatoes, packaging and fuel. In the United
States, operating expenses decreased despite an increase in distribution routes, fuel
prices and labor costs.
At the close of the second quarter,
Grupo Bimbo S.A. de C.V. had net debt
of NP$3,353 million, a 9% reduction from
June of 2005. MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - August 1, 2006

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