After a robust first quarter, Kellogg increases its outlook.
Michigan’s Battle Creek According to chairman, president, and CEO Steven A. Cahillane, Kellogg Co. is “in the enviable position of being able to raise our outlook for the full year” as a result of the company’s outstanding first quarter.
Speaking to financial analysts on May 4, Mr. Cahillane stated that the company had a positive quarter ending April 1, with improved service levels and a quicker than expected resolution of bottlenecks and shortages.
“Across all of our regions and category groups, we are still growing net sales organically above our long-term targets,” he stated. “We also keep moving closer to regaining our profit margins.”
In the first quarter of this year, net income was $298 million, or 87¢ per share on common stock, a 29% decrease from $422 million, or $1.24, in the same period the previous year. Sales increased by 10% to $4.05 billion from $3.67 billion.
The decline in earnings from the previous year was caused by a number of unusual factors, such as a negative year-over-year variation in mark-to-market impacts and additional upfront expenses associated with the impending separation of the cereal business, in addition to lower pension income, increased interest costs, and unfavorable foreign exchange translation. After accounting for one-time expenses and currency conversion, adjusted profits per share increased by 3%.
According to Kellogg, “inflation-driven price realization” was the reason for the company’s robust net sales increase in each of its regions: Europe; Asia, Middle East, and Africa; Latin America; and North America. Global snacking, noodles in Africa, and rebounding cereal sales in North America were Kellogg’s category growth drivers.
Price and mix contributed 15.6 percentage points to the sales rise, while volume decreased by 1.9% and currency had a 3.3-point negative impact.
According to Kellogg, “the company was able to improve its service levels and mitigate inefficiencies as supply bottlenecks and shortages began to moderate.” Together with measures to control revenue growth and productivity in order to offset the high inflation of input costs, this has accelerated the recovery of profit margins. Better operating profit than anticipated as a result led management to improve its expectation for the entire year.
North America’s first-quarter operating profit was $366 million, up 8% from $399 million in the same period last year. Sales increased 13% to $2.39 billion from $2.11 billion in the previous year. Little to no volume was reduced, and pricing and mix accounted for nearly all of the gain.
Sales of snacks increased by 15% in North America during the first quarter, while sales of frozen foods increased by 1% and cereal by 17%.
“Pringles, driven by our multipacks and our core four flavors, well outpaced the US salty snacks category’s double-digit growth,” Mr. Cahillane stated. “In terms of crackers, Cheez-It had finished a very successful year-earlier quarter, but our Club and Town House brands saw double-digit rise in consumption. Additionally, our decision to stop selling select Kashi bars and give priority to Pop-Tarts SKUs with limited capacity concealed the fact that the market for portable, healthful snacks was still growing for Rice Krispies Treats and Special K bars.
Mr. Cahillane blamed supply issues in Eggo’s frozen breakfast business, particularly in the company’s Morningstar Farms division, for the meager increase in sales of frozen meals.
“We gained nearly three points of share year-over-year as our resumed commercial activity is producing share gains across our portfolio led by Rice Krispies, Special K, Raisin Bran, and Frosted Flakes,” Mr. Cahillane stated. “The cereal category grew at a double-digit rate in the quarter.”
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Following the first-quarter results, Kellogg increased its financial projection for the entire year. The earlier guidance of 5% to 7% for net sales growth has been revised to a range of 6% to 7% by the company. It is anticipated that operating profit will increase by 8% to 10%, or by 1% on each side. In contrast to prior guidance of a 2% to 4% decline, earnings per share are anticipated to drop by 1% to 3%.
According to Kellogg, “this improved outlook reflects the higher operating profit outlook, while still incorporating significant year-over-year pressure from the impact of lower financial asset values and higher interest rates on pension income and interest expense.”
Later in the year, the corporation is apprehensive about its sales growth prospects.
Amit Banati, vice chairman, senior vice president, chief financial officer, and principal financial officer, stated, “We maintain our assumption for decelerating growth as the year progresses, which reflects a likely return of elasticity toward historical levels as well as lapping a particularly substantial revenue growth management actions in the second half of last year.”