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    Kellogg's Profit Boosted by Cereal, Snacks

    Revenue is up nearly 10 percent, driven by higher sales, price increases and new products.

    NEW YORK -- Kellogg Co.'s profit for the third quarter rose to $342 million from $305 million last year, lifted by strong cereal and snack sales, which surpassed the expectations of analysts polled by Thomson Reuters.

    Revenue rose nearly 10 percent to $3.29 billion from $3 billion last year, matching analyst expectations. Price increases helped offset high costs for commodities such as food and oil.

    "Our success was driven by price realization, effective advertising and continued business momentum," said CEO David Mackay in a conference call with analysts.

    The company expects sales of its cereals and snacks to remain strong over the coming months as consumers eat in more frequently, but also said cost pressures will remain high, particularly in Europe and Latin America.

    In North America new products, such as Frosted Mini-Wheats Blueberry Muffin cereal, helped cereal sales, as well as other products including Special K Cinnamon Pecan cereal. Pop-Tarts and new products including Cheez-It Duoz sold well in the snack category.

    Internationally, one weak spot was Latin America, where sales declined, hurt by the weaker economic environment in Mexico and "aggressive pricing" by a competitor that the company did not name.

    Kellogg expects 2008 earnings will be at the high end of its previous guidance of $2.95 to $3 per share as it works on cutting manufacturing and other costs. Analysts expect a profit of $3 per share.

    The company continues to predict a mid-single-digit percentage revenue increase, driven by higher sales and price increases.

    Kellogg said despite some recent moderation of commodity costs, it still expects cost of goods sold to rise 5 percent in 2009.

    The increase includes 2.5 percentage points related to wages, factory expenses and benefits, and 2.5 percentage points related to packaging, energy and commodity inflation, skewed toward Latin America and Europe as the dollar strengthens.

    "While prices are down in some commodities, if you look at spot prices on things like sugar and rice, they're up an aggregate of between 40 and 50 percent," MacKay said.

    For 2009, the company said it expects sales to grow in the mid-single-digit percentage range, excluding the foreign exchange rate and acquisitions. It expects earnings-per-share growth in the high-single-digit percentage range.

    "We're realistic about the headwinds we face in 2009 including additional inflation and a weaker economy," said CFO John Bryant. "While the unprecedented strengthening of the U.S. dollar is also likely to impact reported earnings per share, we are confident in our ability to deliver high-single-digit earnings-per-share growth on a currency neutral basis next year."

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