BATTLE CREEK, MICH. — A “sooner-than-expected recovery” in gross profit margin, primarily related to bottlenecks and shortages diminishing, helped drive better-than-expected quarterly earnings at Kellogg Co., said Steven A. Cahillane, president and chief executive officer.
Commenting in an Aug. 3 conference call with analysts, Mr. Cahillane also said the Battle Creek-based company was encouraged by momentum in its “biggest, most differentiated brands,” which include Cheez-It, Eggo, Frosted Flakes, Pringles, Pop-Tarts and Rice Krispies Treats.
“These advantaged brands made up half of our net sales in 2022, and they continue to outpace our overall growth, creating both top-line momentum and a favorable margin mix,” Mr. Cahillane said. “So when we put it all together, the earlier-than-expected margin recovery and the sustained top-line growth across our portfolio, you can see why we feel comfortable raising our full-year sales, profit and earnings guidance again.”
Full-year net sales now are expected to grow approximately 7%, up from earlier guidance of 6% to 7%, while operating profit is forecast to grow 9% to 10%, up from 8% to 10%. Guidance for earnings per share was raised to a decline of 1% to 2%, up from an earlier forecast of a decline of 1% to 3%, Kellogg said.
Kellogg net income during the quarter was $357 million, equal to $1.04 per share on the common stock, up 9.5% from $326 million, or 96¢ per share, in the same period a year ago.
Quarterly sales rose 4.6% to $4.04 billion from $3.86 billion.
North America business unit sales rose 3.3% to $2.33 billion during the quarter ended July 2, up from $2.25 billion in the same quarter a year ago. Unit operating profit decreased 3% as incremental up-front costs related to the pending separation more than offset the benefits of higher net sales, improving service levels and operating efficiencies.
Mr. Cahillane said snacks and frozen foods both showed stronger sales in North America, while cereal continued to recover.
“In the US, the category remained in high single-digit growth in spite of gradually rising elasticities,” he said. “Led by brands like Corn Flakes, Frosted Flakes, Rice Krispies and Raisin Bran, we continue to gain share year-on-year, and we continue to activate more commercial support, increase our distribution and increase our velocities. A similar recovery is happening in Canada, where we also continued to gain share in the second quarter. So this business is back on solid footing with more to come.”
Looking ahead to the rest of the year, Mr. Cahillane said North America is positioned well as it sets up for the spin-off of W.K. Kellogg Co. later this year.
In terms of consumer behavior, Mr. Cahillane said Kellogg is seeing a shift to consumers really maximizing their pantries.
“They’re closely managing their household inventories, their pantry inventories, zealously guarding against waste, as you would expect in this environment,” he said. “And so we haven’t seen shifts out of our category really. We haven’t seen meaningful moves in private label or anything like that. I would just say a consumer that’s ever more conscious of the strains on their household budgets, and we would expect that to continue moving forward. And as we look at our promotional activities for the balance of the year, we’re also taking that into account.
“And we’re pleased our service levels are going back up and allowing us to be a little bit more front-footed as we think about display execution, quality, merchandising and things of that nature.”
In Europe, Kellogg’s sales rose 12% to $669 million, in Latin America they rose 17% to $336 million, and in its Asia Pacific, Middle East and Africa business unit sales were down 1% to $712 million year-on-year.
Net income for the first six months of fiscal 2023 was $655 million, or $1.91 per share, down 12.5% from $748 million, or $2.20 per share, in the same period of the previous year.
First-half sales rose 7.4% to $8.09 billion from $7.54 billion.
