Convenience food manufacturer Kellogg Co. (K) on Thursday posted a 6% growth in third-quarter profit aided by its cost-reduction initiatives and improved gross margin. Per-share earnings rose from last year and topped the Street view. The company also affirmed its 2009 sales forecast, and lifted its earnings growth outlook to 10%-12% from the earlier projection of 8%-10%.
Like many other food companies, Kellogg has also been benefiting from higher prices and eat-at-home trend amid the recession. The company is also pursuing productivity initiatives, as well as taking advantage of media deflation and efficiency programs to invest into advertising to further boost the long-term health of its brands.
Q3 Results
The Battle Creek, Michigan-based cereal maker's third-quarter net income attributable to Kellogg Co. was $361 million or $0.94 per share, an increase of 6%, compared to $342 million or $0.89 per share in the year-ago quarter. Earnings per share were up 12% on a currently-neutral basis despite higher up-front costs.
On average, 18 analysts polled by Thomson Reuters expected the company to post earnings of $0.84 per share. Analysts' estimates typically exclude special items.
However, quarterly net sales dropped 0.3% to $3.28 billion from the previous year's net sales of $3.29 billion, but came in better than the $3.27 billion revenue consensus estimate of thirteen Wall Street analysts.
Internal net sales growth, which excludes the effects of foreign currency translation and acquisitions, grew 3%, in line with the company's long-term annual growth targets.
Geographical Analysis
Kellogg North America's third-quarter sales amounted to $2.19 billion compared to $2.16 billion last year, an increase of 1% on a reported basis and 2% on an internal basis, building on strong year-ago internal net sales growth of 9%. Internal net sales growth for Kellogg North America consisted of 2% internal net sales growth delivery from North America Retail Cereal, 3% growth from North America Snacks, and a decline of 3% from North America Frozen and Specialty Channels
Kellogg International witnessed a quarterly sales decline of 4% on a reported basis. However, net sales advanced 6% on an internal basis, which excludes the effects of currency translation and acquisitions. Internal net sales for Kellogg International consisted of Latin America's internal net sales growth of 9%, 4% rise in Asia Pacific, and 5% increase in Europe versus last year.
Other Metrics
Total up-front costs for cost-reduction initiatives totaled about $0.06 per share, out-pacing the previous year's up-front costs of $0.01 per share. Gross margin for third quarter 2009 of 43.9% represents a 120 basis point increase over last year on a reported basis.
Operating profit for the most recent quarter was $567 million, up 6% on a reported basis and 11% on an internal basis. This compares to the prior-year's operating income of $533 million.
Year-To-Date Highlights
For the nine-month period, the company reported net income attributable to Kellogg Co. of $1.04 billion or $2.70 per share, compared to $969 million or $2.51 per share in the prior-year period.
Net sales for the nine months ended October 3, 2009 totaled $9.68 billion, down from $9.89 billion reported in the corresponding period of the previous year.
Future In Focus
Looking ahead, the company, whose brands include Rice Krispies, Pop-Tarts, Eggo waffles and Morningstar Farms, re-affirmed its internal sales growth guidance of 3% - 4% for full-year 2009, which is above the company's long-term targets. The company currently expects increased gross margin expansion of about 100 basis points for 2009, reflecting strong productivity gains and slightly lower than expected inflation.
Kellogg also lifted its forecast for fiscal 2009 internal operating profit growth to a range of 8% - 10%, above its long-term targets and despite significant re-investment in advertising and up-front costs. Further, the company raised its currency-neutral earnings per share growth guidance for 2009 to a range of 10 - 12% from 8% - 10%, reflecting strong profit growth slightly offset by higher interest expense. Analysts are looking for earnings of $3.17 per share on revenues of $12.68 billion for fiscal 2009.
Given the strong performance in 2009, continuing momentum and significant re-investment, Kellogg expects fiscal 2010 internal net sales growth of 2% - 3%, in line with the company's long-term targets and reflecting less pricing year-on-year. Up-front costs for 2010 are projected to decline from 2009's $0.26 per share to a range of $0.14 - $0.16 per share, positively impacting the operating profit and net earnings.
Consequently, the company estimates internal operating profit growth in the high single-digit range, above its long-term annual targets. Reflecting the higher level of anticipated profit growth for 2010, Kellogg further projected per share earnings growth in a range of 10% - 12% on a currency-neutral basis for 2010, anticipating a second consecutive year of growth above its long-term annual targets. For 2010, analysts are expecting earnings of $3.51 per share and revenues of $13.28 billion.
CEO Mackay added, "Although most aspects of our guidance for both 2009 and 2010 are above our long-term targets, we are pragmatic about the challenging environment we face. Hence, we are focused on continued reinvestment into our brands, as well as optimizing our business model and global organization -- while achieving cost savings and future visibility."
Peer Performance
Among Kellogg's rivals, General Mills Inc. (GIS) posted higher profit for the first quarter that totaled $420.6 million or $1.25 per share, compared to $278.5 million or $0.79 per share in the year-ago quarter. Net sales improved 0.6% to $3.52 billion from the previous year's $3.49 billion. For fiscal 2010, the company increased its earnings forecast to a range of $4.40 - $4.45 per share, excluding any impact from mark-to-market effects. Earlier, General Mills expected earnings between $4.20 and $4.25 per share, excluding any mark-to-market impact.
Stock Quotes
Kellogg shares, which have been trading between $35.64 and $53.39 in the past 52 weeks, are currently trading at $50.85, up 86 cents or 1.72%.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.