Kellogg Q4 results strong but European sales slow

By Anita Awbi

- Last updated on GMT

Related tags Kellogg company Kellogg

The world's leading cereal manufacturer Kellogg has announced a 3.2
per cent rise in quarterly net profit as cost-cutting techniques
continue to keep rising fuel and ingredients expenses at bay.

But the US-based maker of Rice Krispies and All-Bran reported a four per cent decrease in Q4 sales across its international division, with a difficult European operating environment bringing only marginal sales increases.

The UK, Kellogg's key international market, yielded single-digit Q4 sales rises for both cereals and snacks, while the Asia-Pacific business posted internal sales growth of one per cent for the whole year.

Nevertheless Kellogg CEO Jim Jenness remained optimistic, saying: "In 2005 our company posted the strongest performance since we implemented our focused strategy."

Following a lengthy cost cutting exercise the company's full-year operating profit increased by four per cent in 2005 to $1.8 billion, as it improved key brand value and took position against rival cereal producer General Mills.

But year-end performance was slightly damaged by Q4 returns as the company struggled to offset production costs, reporting a six per cent operating profit drop to $344 million.

In spite of this slight downturn in year-end performance, Kellogg has raised its expectations for 2006 full-year earnings from $2.43 per share to $2.48 per share.

Kellogg, which sells its cereals and snacks in 180 countries, said in a statement: "The company raised its earnings guidance despite continued expectations that, like the rest of the industry, it will face significantly higher fuel, energy, and benefit costs."

This is because the company intends to invest in brand-building initiatives over the coming year, while applying additional cost-saving plans to offset industry pressures and strengthen its international position.

These schemes will bring costs of around $90m.

"Our focus and realistic targets allow us to make the right decisions for the long-term and make significant investments in brand building and innovation, which we recognise as the drivers of industry growth,"​ Jenness said.

However some analysts predict the company may not be able to maintain the strong Q1 results that boosted performance in both 2004 and 2005, as the difficult economic climate continues to take its toll on global food producers.

The company, together with media conglomerate Viacom, is to face a lawsuit because of their marketing of 'junk food' to children it emerged last week.

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