While it has begun to see early signs of improvement in cereal in the UK, despite the tough consumer and trade environment, Kellogg cautions that the UK snacks business continues to struggle.
“UK is a very tough consumer environment right now,” said CEO John Bryant in a conference call on the results.
“The consumer is very depressed. I do think with inflation coming through and cost pressures coming through, you are seeing improving trends in that UK cereal category, but it's still lagging with trends we're seeing in the US,” he added.
Overall the company said its second quarter results demonstrate that it is beginning to rebuild its momentum, following “a very difficult 2010.” The highlight of the second quarter was “very strong share results across our US business, driven by innovation, brand building and execution.”
Kellogg North America net sales were $2.2bn, an 8 per cent increase on both a reported and internal basis.
France, Italy and Russia
Internal net sales in its wider European business, said Kellogg, grew 1 per cent, driven by positive performance in France, Italy and Russia. However, Europe's internal operating profit declined 9 per cent, said the manufacturer, citing factors as the UK operating environment and input inflation across the region.
“We expect Europe's results to remain under pressure this year,” added Kellogg’s chief financial officer Ronald Dissinger.
The Kellogg CEO, nevertheless, remarked that the company expects strong performance from cereal innovation in the UK market in the back half of the year with a new whole grain product that is high in fibre and low in sugar – Mini Max.
“We are also relaunching All-Bran with All-Bran Golden Crunch. In snacks, we're introducing Rice Krispies Squares chocolate orange flavour,” said Bryant.
He added that the company is starting to see better results on the continent, with Tresor and Extra cereals continuing to grow share in France. “Not only did they contribute to net sales growth but also helped to expand the ready-to-eat cereal category, serving as a good example of the importance of innovation for both us and the category,” commented the CEO.
“We also grew share in Italy and saw consumption growth in Spain,” added Bryant.
The Company expanded its full-year 2011 internal net sales growth guidance to a range of 4 to 5 per cent, saying that the “increased net sales outlook is expected to offset anticipated higher cost pressures.”