part two

Kellogg Company continued to deliver strong cash flow, generating $978 million year-to-date, including an unfavorable impact from foreign exchange. The Company's year-to-date cash flow, defined as cash from operating activities less capital expenditures, surpassed the $893 million of cash flow generated during the comparable period in 2008. For the full-year 2009, Kellogg raised guidance for cash flow, as defined, to approximately $1.2 billion. "Manage for Cash continues to be a key operating principle for Kellogg. Having re-doubled our efforts in this difficult environment, we will deliver a record cash flow performance in 2009 despite the adverse impact of foreign exchange," said Mackay.

Kellogg Raises Full-Year 2009 Guidance and Provides Guidance for 2010

Kellogg re-affirmed its internal sales growth guidance of 3 - 4% for full-year 2009, which is above the Company's long-term targets. The Company now anticipates increased gross margin expansion for full-year 2009 of approximately 100 basis points, reflecting strong productivity gains and slightly lower than expected inflation. Kellogg also raised guidance for 2009 internal operating profit growth to a range of 8 - 10%, above the Company's long-term targets and despite significant re-investment in advertising and up-front costs. In addition, the Company raised its currency-neutral earnings per share guidance for 2009 from a range of 8 - 10% to a range of 10 - 12%, reflecting strong profit growth slightly offset by higher interest expense.

Supported by the strong performance in 2009, continuing momentum and significant re-investment, the Company is well-positioned to deliver another year of strong growth in 2010. For 2010, Kellogg anticipates internal net sales growth of 2 - 3%, in line with the Company's long-term targets and reflecting less pricing year-on-year. Up-front costs for full-year 2010 will decrease from 2009's 26 cents per share to a range of 14 - 16 cents per share and this decrease will positively impact operating profit and net earnings. Accordingly, the Company anticipates internal operating profit growth in the high single-digit range, above its long-term annual targets. Reflecting this higher level of anticipated profit growth for 2010, the Company further guided to a range of 10 - 12% earnings per share growth on a currency-neutral basis, anticipating a second consecutive year of growth above its long-term annual targets.

CEO Mackay concluded, "Although most aspects of our guidance for both 2009 and 2010 are above our long-term targets, we are pragmatic about the challenging environment we face. Hence, we are focused on continued reinvestment into our brands, as well as optimizing our business model and global organization -- while achieving cost savings and future visibility. We therefore remain confident in our ability to continue delivering sustainable, dependable performance in the future."