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    Kellogg Exceeds Earnings Expectations

    North American snack business posts strong second quarter.

    Kellogg Co., maker of cereals and snacks, showed strong sales and earnings growth ahead of expectations for the second quarter of 2006.

    Reported net sales in the quarter increased by 7 percent to $2.77 billion. Net earnings for the quarter were $266.5 million, a 3 percent increase from last year's $259 million. "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, Kellogg's chairman and CEO. "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 the business, all of which gives us continued confidence in the year."

    The internal sales growth rate for the full year is expected to be in the mid single-digits, ahead of the company's long-term target of low single-digit growth.

    Kellogg North America reported second quarter net sales growth of 9 percent and internal net sales growth of 8 percent driven by strong growth in the Retail Cereal, Retail Snacks, and Frozen & Specialty Channels businesses. For the quarter, all major North American retail businesses gained category share in measured channels. The Retail Snacks segment posted internal sales growth of 11% on top of the 8% growth in the second quarter of last year. This was driven by strong growth in Pop-Tarts, Cheez-It, Kellogg's wholesome snacks and fruit snacks, as well as continued growth in cookies.

    Retail Cereal posted internal sales growth of 4 percent driven by strong growth in various brands including Kellogg's Frosted Mini Wheats and Kashi brand cereals. This growth came on top of the strong double-digit growth in the second quarter last year. The North America Frozen & Specialty Channels businesses combined posted internal sales growth of 9 pecent, driven by double-digit growth in Eggo and veggie foods, strong retail acceptance of new Kashi Frozen entrees and strong growth in convenience and drug stores.

    Operating profit was $461.2 million in the second quarter, a 2-percent decline from the second quarter of last year. Internal operating profit, which excludes the impact of foreign exchange and stock option expense, increased 1 percent in the second quarter and 3 percent in the year-to-date period, ahead of the company's expectations. 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.

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