Cahillane: Kellogg’s recuperation is “beyond schedule.”
Michigan’s Battle Creek Better-than-expected quarterly results at Kellogg Co. were aided by a “sooner-than-expected recovery” in gross profit margin, which was mainly caused by bottlenecks and shortages abating, according to president and CEO Steven A. Cahillane.
Speaking during a conference call with investors on August 3, Mr. Cahillane added that the Battle Creek, Texas-based firm was heartened by the growth of its “biggest, most differentiated brands,” which include Rice Krispies Treats, Pringles, Eggo, Frosted Flakes, Cheez-It, and Pop-Tarts.
According to Mr. Cahillane, “These advantaged brands accounted for half of our net sales in 2022 and are still growing faster than we are as a company, generating both top-line momentum and a favorable margin mix.” “Therefore, considering the entire picture—the stronger top-line growth throughout our portfolio and the earlier-than-anticipated margin recovery—we are confident in increasing our guidance for full-year sales, profit, and earnings.”
Operating profit is anticipated to increase from 8% to 10% to 9% to 10%, while full-year net sales are now predicted to climb by roughly 7%, up from the previous projection of 6% to 7%. Kellogg stated that the earnings per share guidance was revised from an earlier estimate of a decline of 1% to 3% to a decline of 1% to 2%.
During the quarter, Kellogg’s net income increased to $357 million, or $1.04 per share on common stock, from $326 million, or 96¢ per share, during the same time last year, a 9.5% increase.
Sales in the North America business segment increased 3.3% to $2.33 billion in the quarter that ended on July 2 from $2.25 billion in the same period the previous year. The benefits of higher net sales, better service levels, and increased operational efficiencies were more than offset by more upfront expenditures associated with the impending separation, which resulted in a 3% fall in unit operating profit.
According to Mr. Cahillane, sales of frozen meals and snacks were higher in North America, but cereal sales were still improving.
“Despite gradually increasing elasticities, the category continued to grow at a high single-digit rate in the US,” he stated. “We continue to gain share year over year, and we continue to engage more commercial support, improve our distribution, and boost our velocities, led by brands like Corn Flakes, Frosted Flakes, Rice Krispies, and Raisin Bran. We also continued to gain share in Canada during the second quarter, where a comparable recovery is taking place. Thus, this company is back on stable ground and there will be more.
With an eye toward the remainder of the year, Mr. Cahillane stated that North America is in a good position to facilitate the spin-off of W.K. Kellogg Co. later in the year.
Mr. Cahillane stated that Kellogg is observing a change in consumer behavior where customers are making the most of their pantries.
As you would expect in this climate, he continued, “they’re closely managing their household inventories, their pantry inventories, and zealously guarding against waste.” Therefore, shifts outside of our category haven’t actually been observed. Nothing noteworthy has been happening in the private label space. Simply put, we anticipate that consumers will continue to be more aware of the financial pressures on their households in the future. And we’re considering it as well as our promotional plans for the remainder of the year.
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And we’re happy that our service standards are returning to normal, giving us the opportunity to plan ahead a little bit when it comes to display execution, quality, merchandising, and other related matters.
Kellogg’s sales increased by 12% to $669 million in Europe, 17% to $336 million in Latin America, and 1% to $712 million in its Asia Pacific, Middle East, and Africa business unit year over year.
The first half of fiscal 2023 saw a net income of $655 million, or $1.91 per share, a decrease of 12.5% from the same time the previous year when it was $748 million, or $2.20 per share.