Kellogg Positive Despite Profit Drop

by , Aug 3, 2012, 7:50 AM
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Profits dropped but overall sales and optimism are growing at Kellogg, which announced its second-quarter results yesterday. The integration of the Pringles chips business is “going well,” says president and CEO John Bryant. The recent acquisition from Procter & Gamble is leading the company’s full-tilt charge into the snacks aisle and opening opportunities overseas. 

"We're getting back on track as a company," Bryant tells Reuters’ Martinne Geller. "We're seeing good progress in North America and we're having improvement in Europe, where we had some issues earlier in the year."

The company’s current sponsorship of the Olympic Games will be bolstered in the second half of the year by “a lot of activity … to support commercial activities and innovation,” said Bryant, during a call with analysts. Seeking Alpha has a full transcript of the earnings call here.

Overall, earnings were down 12%, primarily reflecting poor results in overseas markets such as Australia and Europe, “where the cereal maker continued to deal with the fallout from retailers pulling its products from shelves earlier in the year,” reports MarketWatch. But an organic sales dip of 0.7% overseas was offset by a “better than expected” increase of 3.9% in North America. That led to the stock closing up 3.41%.

Perhaps most telling, Kellogg stood behind its full-year forecast for earnings of $3.18 to $3.30 per share on net sales growing 2% to 3%. 

Bryant tells the AP’s Michelle Chapman that the Pringles buyout will take Kellogg’s snack business, which has done well in the U.S., to the next level. “Pringles gives us the ability to grow out that global platform,” he says. “Indeed, the Pringles brand is sold in more than 140 countries and gets two-thirds of its revenue from abroad,” Chapman writes.

Cereals did well compared to the prior quarter, “where some promotions like two boxes of Special K cereal for $6 failed to drive sales,” the Wall Street Journal reports. It did better with a two-for-$5 deal, however. “Where Kellogg saw larger volume declines due to recent price increases, ‘we tweaked the price a bit,’ Bryant tells the Journal’s Paul Ziobro in an interview.

Acknowledging “brand building” as “one of the cornerstones of our operating principles,” Bryant says the company is committed to “ effective programs and more efficient spending, specifically through increased use of digital media.” He also says it will “increase brand building for the whole company at a rate equal to or greater than sales growth for the full year.”

This despite the fact, as the hometown [Battle Creek] Enquirer’s Sara Dorn points out, Kellogg “did see some job losses recently in the sales and marketing functions.”

Pop Tarts, meanwhile, “had a very favorable response to the reintroduction of the Crazy Good advertising campaign,” Bryant said. The current campaign, which included a Facebook–page sweepstakes for free tickets to a Chicago concert featuring Carly Rae Jepsen, Boys Like Girls and Austin Mahone on July 19 and was promoted on YouTube, is evidence of that digital commitment. You need to like the page -– it has 4.1 millions fans overall -- to register for the sweepstakes.

Bryant tells Geller that the impact of the drought on corn prices will not impact the price of products using the ingredient next year. 

“We do expect inflation in 2013,” CFO Ronald L. Dissinger said during the conference call. “Keep in mind, we buy $5 billion worth of commodity packaging and energy across our business. The grains are a relatively small portion of that overall purchase,” 

Another problems Kellogg faces is increased competition to cereals by alternatives such Greek Yogurt, Ziobro points out. But challenges don’t seem to faze Bryant. Reflecting on the situation in Europe, he says: “Even though times are tough there, sometimes you quite frankly get the best return on your investment by investing in the tough times.” 

1 comment on "Kellogg Positive Despite Profit Drop".

  1. Paula Lynn from Who Else Unlimited
    commented on: August 3, 2012 at 11:01 a.m.
    What Mr. Dissinger seems to imply is to keep an eye on supermarket brands selling more cereal in clear paper bag packaging, not to mention restating where the waste lies (including shipping and energy costs).

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