Kellogg resumes steady economic growth
Encouraged by a pandemic that offered “a sampling event like none other,” according to the CEO of the company, Kellogg Co. saw significant earnings growth in the 2020 fiscal year.
After a 30% increase from $960 million, or $2.81 per share, in the fiscal year that ended on January 2, net income in the current fiscal year came to $1.25 billion, or $3.65 per share on the common stock. The rise more than offset the lack of results from sold firms, which was mostly due to lower one-time costs and a lower reported effective tax rate.
With $13.77 billion in net sales, the prior fiscal year’s $13.58 billion saw a 1.4% increase. During the year, there was an approximate 6% growth in organic net sales.
Compared to the fourth quarter of the prior year, when it was reported at $145 million, or 43¢ per share, Kellogg Companywide reported net income of $205 million, or 60¢ per share, an increase of 41%. Sales increased 7.4% to $3.46 billion in the fourth quarter from $3.22 billion. Sales of organic products increased by 2.5%.
According to Kellogg, organic net sales are expected to fall by about 1% in fiscal 2021, mostly as a result of the contrast with the very robust COVID-19-related growth in fiscal 2020.For the fiscal year 2021, an approximate 1% increase in adjusted earnings per share is anticipated.”We aimed to resume balanced financial growth this year, which entails a balance among top-line growth, margin expansion, and cash flow conversion,” stated Chairman, President, and CEO Steven A. Cahillane on a conference call with analysts on February 11.
And sure enough, in 2020 we managed to return to balanced financial growth despite all the unforeseen effects, including divestment, COVID, and the 53rd week. Strong organic net sales growth, even after deducting a reasonable estimate for the net benefit of COVID; growth in operating profit despite the mechanical impact of last year’s divestiture, which cost approximately 6 percentage points; and a better-than-expected increase in cash flow with a markedly improved conversion of net income. Not even counting COVID net benefits, we returned to balanced financial growth in 2020, right on schedule.
“We did a great job in the marketplace. We were given a sampling occasion unlike any other by the pandemic. Additionally, household penetration increased faster than in most of our categories, providing us with a fantastic opportunity to connect with and keep both new and lapsed customers. Additionally, we outgrew the majority of our categories, maintaining or increasing our market share in those that accounted for over 80% of our net sales in those assessed areas.
“Our emerging markets, which account for more than 20% of our net sales, are a major long-term growth engine for us. They were put to the test in 2020 by social upheaval, economic slowdowns, and shutdowns brought on by pandemics. Nevertheless, they increased our organic net sales by a high single digit percentage for us in 2020, even outpacing the increases from the previous two years.rates. This is a real testament to our portfolio, our local supply chains and our experienced management teams in these markets. In short, the business performed very well in 2020, and we will take that momentum into 2021.”
While sales in North America fell to $8.36 billion from $8.39 billion in fiscal 2020, operating profit climbed 21% to $1.47 billion. Comparatively, organic sales increased 5.1% in the past year, according to Kellogg.
According to Mr. Cahillane, “Kellogg North America had a very strong year.” Significantly, all of our category groups had increase in 2020. There were headwinds in the form of much fewer out-of-home events and outlets as well as fewer on-the-go occurrences in each of these category groups. The good news is that our retail channel growth in each of these category groupings was enhanced by higher at-home demand and a consumer preference for brands. This is a credit to our team’s dexterity and execution as well as the power of our brands.
“Creativity”Despite the obstacles to launch, we managed to introduce successful products like the cereal Jumbo Snax, venture into new markets with the meat substitute Incogmeato, and capitalize on the enormous success of Cheez-It Snap’d. We had to postpone marketing campaigns early in the year, so we made changes to our commercial plan. We moved a larger portion of our brand-building efforts into advertising, and we used the investment funds we were unable to use in the first half in the second half.
Mr. Cahillane acknowledged that the company’s Frosted Flakes division faced certain difficulties. He claimed that because of capacity limitations, Kellogg was compelled to scale back Frosted Flake promotions, which resulted in a drop in market share in the fourth quarter.
As we left the, our capacity was limited.year,” he clarified. “Obviously, nobody saw cereal as having the kind of year that it did. Category increase was about 9%, with a slight slowdown in the second half but still a growth of 5.6 percentage points. Thus, we put in a lot of effort throughout the year to meet demand and maintain the highest possible standards of service. Additionally, we had a flat share performance at year’s end, with a slight decline in the fourth quarter.
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“Almost all of that slippage was a result of Frosted Flakes, where we had to back off of promotions due to capacity.” Because we were unable to implement the Mission Tiger program and we choose to maintain our service levels as they were, you can observe that the syndicated data shows a 20% decrease in incremental sales.
Retailers are entitled to them. We thereby forfeited our promotional slots. And Frosted Flakes was the main cause of our share decrease in the fourth quarter.As we go closer to 2021, we’re still building against our capacity, making progress, and maintaining our high level of optimism. We’re going to continue to improve in that capacity as the first half of this year goes on. As a result, we will continue to improve our share performance.