BATTLE CREEK, Mich. — Momentum in the North American snack business, combined with a faster-than-expected recovery in the region’s cereal division, supported Kellogg Co.’s results. for the second quarter. A strong first six months of the fiscal year led the company to raise its guidance for the full year.
“(North America) had an exceptionally strong quarter, posting significantly strong net sales growth with growth in both volume and price/mix,” Steven A. Keilin, chairman, president and chief executive officer, said on a conference call on August 4 with securities analysts. “Our sales growth was driven by our largest business, snacks, which accelerated due to end-market momentum, managing revenue growth and replenishing trade inventory.
“Cereal also reported strong net sales growth in the second quarter, driven by both volume as we replenished our inventory and retailers and price/mix as we executed actions to manage revenue growth.” We believe our recovery is on a solid footing as we move into the second half, and once we get past the impact of the fire and the strike, we are in the early stages of restoring our profit margins in this business as well.”
North America business unit sales rose 12% to $2.3 billion in the quarter ended July 2, up 12% from the second quarter of fiscal 2021. The unit’s operating profit increased 5% , as higher net sales were also partially offset by higher input and logistics costs such as a one-time pension-related charge.
While Kellogg executives touted quarterly earnings, securities analysts on the call focused on the outlook for the North American cereal business after the retailer restocks and what it could mean for the business if it is spun off from the company.
“We have 5 of the top 11 brands,” Mr Cahillane said. “They are strong brands. All the information, research and data we have suggests or confirms how strong these brands are, how relevant they are. The category … is very strong. It shows incredible pricing power. Even the last 4 weeks are better than the last 13 weeks. The category is quite strong. It is universal. This shows, especially in hard times, that this is a very affordable food for people. A bowl of cereal with a glass of milk is $1 and that really helps the category.”
A focused management team will benefit the North American grains business once it is spun off, Mr Cahillane said.
“…The only focus will be how to manage these great brands in a category that is showing good recovery,” he said. “The No. 1 focus of a new sales team will be those brands with customers.”
Kellogg’s net income in the quarter was $326 million, or 96¢ per common share, down from a year earlier when the company earned $380 million, or $1.12 per share.
Quarterly sales rose to $3.9 billion from $3.6 billion.
In Europe, Kellogg’s sales fell 3% to $598 million, in Latin America they rose 8% to $288 million, and in the Asia Pacific, Middle East and Africa business units, sales rose 11% to $732 million dollars on an annual basis.
Net income for the first six months of fiscal 2022 was $748 million, or $2.20 per share, and was unchanged from the same period last year, when the company earned $748 million, or 2 .19 dollars per share.
First-half sales rose to $7.5 billion from $7.1 billion.
The strong half prompted the company to raise its guidance for the full year.
“We are raising our full-year net sales outlook to organic growth of 7% to 8%, a significant increase from our previous guidance of approximately 4% growth,” said Amit Banati, chief financial officer. “We are raising our full-year outlook for adjusted earnings per share to approximately 2% growth on a currency-neutral basis, up from our previous guidance of 1% to 2% growth.”