Q2 earnings: Consumer appetite for Kellogg’s cereals continues to grow despite elevated prices

By Gill Hyslop contact

- Last updated on GMT

Kellogg said average selling prices were up 13.7% in the second quarter. Pic: GettyImagges/raspberryhmac
Kellogg said average selling prices were up 13.7% in the second quarter. Pic: GettyImagges/raspberryhmac

Related tags: Kellogg company, Breakfast cereals, Earnings Call, Inflation, price hikes

Kellogg Company raised its forecast for full-year earnings, as a price hike for its Special K, Frosted Flakes, Corn Flakes and Rice Krispies, among others, offset an environment ‘as challenging as we’ve ever seen it’ – CEO and chairman.

The breakfast cereal giant has been largely successful in raising product prices to counter spiralling costs of freight, labour and ingredients without drawing the ire of consumers.

Kellogg said average selling prices were up 13.7% in the second quarter,​ while sales volumes dropped by a marginal 1.5%.

In fact, according to CEO and chairman Steve Cahillane, the company is “seeing particularly strong consumption growth and share performance in many of our biggest, world-class brands.”

On an earnings call, Cahillane said Kellogg’s – like many others – has been facing “economywide bottlenecks and shortages that are not only pushing costs higher, but are also making it very difficult to supply the market”​ as well as “acute shortages in labour across all spectrums of the economic,”​ which has resulted in “absenteeism, high turnover, difficulty maintain[ing] temporary labour and, for some of us, even labour strikes.”

However, he noted the company is “taking important actions to manage through today's unprecedented environment. And through it all, we're executing well in market and delivering balanced financial growth, which continued in quarter three. Consumption growth remains elevated, as measured on a two-year compound annual growth basis even if it continues to decelerate as expected.”

At a glance

This resulted in an 8.4% rise in revenue to $3.86bn for the quarter ended 2 July, from $3.56bn a year earlier, beating Street expectations of $3.64bn.

As such, the Battle Creek, Michigan-based conglomerate is now expecting annual core net sales to increase in the range of 7%-8%, compared with its prior forecast of about 4% growth.

However, second quarter earnings decreased, coming in at $326m, or $0.95 per share, versus $380m, or $1.11 per share, a year ago.

Shares of the company – which recently announced a three-way breakup to create businesses focused on snacks, cereals and plant-based meat ​– rose 2.8% in trading before the bell.

It also expects adjusted full-year operating profit to rise 4-5% on a currency-neutral basis, above its previous expectation of 1-2% growth.

Employee grit

“We are still managing through a pandemic and still nowhere close to what any of us would call life as normal. This is certainly true from a business perspective as well,”​ said Cahillane.

The company’s Deploy for Balance Growth strategy keeps “us on our path for steady, balanced financial returns for shareowners”, ​while its Better Days ESG-oriented programme “remains a part of the DNA of Kellogg Company, and we have not lost sight of this during the current pandemic and business environment.”

He added: “Our second-quarter performance again demonstrated the strength of our portfolio and the skill and grit of our employees, who managed through an unusually challenging supply and cost environment and delivered strong financial results.

“We sustained notably strong growth momentum in snacks and emerging markets, while accelerating the recovery of supply and category share in our North America cereal business, all while leveraging productivity initiatives and revenue growth management to mitigate the impact of decades-high input cost inflation.

“There is no question that today’s business environment is as challenging as we’ve ever seen it. Our organisation has risen to all of these challenges using creativity, skills and work ethic to manage through them.”

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