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Kellogg issues profit warning ahead of Q1 results

By Oliver Nieburg , 23-Apr-2012

Cereal giant Kellogg has lowered its financial guidance for 2012 as declining European sales led it to perform below expectations in its first quarter (Q1) results.

The company’s Q1 results are officially due this Thursday (26 April), but Kellogg has warned investors to expect weaker performance than had been initially anticipated.

Europe lags

Kellogg said Q1 net sales has declined 1.3% and operating profit had fallen 6.5% on last year driven by poor performance in Europe, weak volume growth in certain US categories and the company’s “desire to continue to invest in future growth”.

The warning comes soon after Kellogg acquired Pringles from Procter & Gamble in February this year for $2.7bn, after Diamond Foods’ bid collapsed.

Kellogg president and CEO John Bryant said: "We are obviously disappointed with the performance of the Company in the first quarter of 2012."

"We faced more significant challenges in both Europe and in some categories in the U.S. than we expected."

“We have recognized and are addressing these issues, and have provided revised guidance that allows us to continue to invest in the business,” he said.

Revised forecast

Kellogg now expects full-year internal net sales to increase between 2 and 3% and full-year operating profit to fall between 2 and 4%.

The company had previously forecast 4 to 5% sales growth in 2012 and operating profit to be flat.

Negative outlook

Last week, Kellogg recently received a negative outlook from the rating agency Standard & Poor’s (S&P) as commodity volatility and integration costs from the Pringles acquisition were expected to harm margins.

The ratings agency affirmed Kellogg’s BBB+ credit rating but said it would downgrade the company if it was unable to achieve 2% sales growth and maintain profit margins in the mid to high teens.

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