The maker of Frosted Flakes, Pop Tarts, and Apple Jacks saw total sales decline about 2% to $2.14 billion as a result of fewer shipping days compared to the year-before quarter. Kellogg said that on a "comparable" basis, sales improved 7%. So investors can better detect how the company's core operations are performing, the company tries to weed out the impact of its Keebler purchase and the effects of both switching to 13-week quarters and changing the way it accounts for amortization in reporting "comparable" numbers.
Comparable sales in the domestic cereal market -- the bulk of Kellogg's business -- improved 6%, crucial growth for the company. Keebler and the other snack-food lines in its stable didn't relax, either, returning comparable growth of 5%.
Kellogg continues to integrate Keebler and has been on a cost-cutting and cost-saving spree over the last year. As a result, operating costs shrunk as a percentage of sales to around 26%, and the operating margin improved to 19.4% from the year ago's 15.8%. Gross margins improved, well, marginally.
The company generates solid operating cash and free cash flow. While it has used this moolah to pay off long-term debt in the past, it chose to buy back shares this quarter, in an effort to offset share dilution associated with stock options. Kellogg has also considered investing in its pension funds. Neither option is particularly wasteful, but the company shouldn't lose sight of its debt load after buying Keebler.
For a big, established company like Kellogg, these results are commendable. Shares aren't exactly a bargain at the moment, but investors looking for safety and slow, predictable growth might consider a spoonful of this cereal.