Rising costs threaten Kellogg margins

By Charlotte Eyre

- Last updated on GMT

Related tags Cent Percentage point Kellogg

A double digit rise in advertising spend, as well as high energy
and commodity costs, has led to declining margins
for Kellogg's during the financial year, the cereal
company reported yesterday.

Margins for the quarter ending 29 December 2007 fell to 12.8 per cent from 13.4 per cent the year before - a decrease of 0.6 percentage points. Margins for the full year results fared slightly better, falling 0.3 percentage points to 15.9 per cent. The US-based firm blamed significant rises in costs, posted at $1.6bn for the quarter and $6.6bn for the year, increasing 8.1 per cent and 7.8 per cent respectively when compared to 2006. However, unlike many food companies, Kellogg managed to increase operating profit for most of its divisions during the fourth quarter, thanks to high net sales across the board. These went up 8.1 per cent to hit $2.8bn in the quarter, and 7.9 per cent to $10.9bn for the year. Total operating profit therefore went up 4 per cent in the quarter, and 5.8 per cent over the whole year. "Despite significant additional cost pressures in 2007, our company posted another year of strong growth,"​ said chief executive officer David Mackay. The only segment that experienced a loss in operating profit was North America, attributed by the company to the high commodity costs, as well as adverse effects from transferring two snack divisions from warehouse to DSD distribution systems. Operating profit for Europe, Latin America and Asia Pacific increased 44 per cent 4.7 per cent and 27.8 per cent respectively. Kellogg said its business model for 2008 remains 'on track', with full year internal sales growth expected in the mid-single digits. "We remain confident in our business model and operating principles,"​ Mackay said. "Our significant investments back into the business provide us with momentum going into 2008." ​The company has already increased customer prices as part of an initiative to achieve these aims, he added. However, this strategy failed in October last year, when Germany-based retailer Metro consequently pulled all Kellogg products from its shelves. Metro spokesman Martin Bruening told BakeryAndSnacks.com at the time that the company had decided to stop buying Kellogg products because the prices increases were "absolutely not justified".

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