Commentary

Recall, Weak Cereal and Eggo Sales Hurt Kellogg

Citing weak cereal sales in North America and the U.K., fallout from a late-June voluntary recall of 28 million boxes of cereal, and a supply disruption that is still affecting Eggo sales, Kellogg Company reported a 15% drop in net income, to $302 million, for Q2 2010.

The company also lowered its full-year EPS growth (on a currency-neutral basis) to 8% to 10%, from its previous guidance of 11% to 13%.

North American cereal sales dipped 13%, and Eggo's troubles drove a 9% decline in N.A. frozen/specialty sales, although snack sales in the region rose 1%.

Kellogg projected a stronger second half, driven by gradual improvement in cereal and modest growth for the recovering Eggo brand, new line extensions and increased advertising.  Advertising spend decreased 3% in Q1 but increased 4% in Q2, and an overall percentage increase in the mid single digits is expected for the full year, Kellogg reported.

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