BATTLE CREEK, MICH. – Momentum in its North America snacks business combined with a faster-than-expected recovery in the region’s cereal unit buoyed the Kellogg Co.’s second-quarter results. A strong first six months of the fiscal year prompted the company to raise its full-year guidance.
“(North America) had an exceptionally good quarter, posting notably strong net sales growth with growth in both volume and price/mix,” said Steven A. Cahillane, chairman, president and chief executive officer, during an Aug. 4 conference call with securities analysts. “Our sales growth was led by our largest business, snacks, which accelerated because of end market momentum, revenue growth management and replenishment of trade inventory.
“Cereal also posted strong net sales growth in the second quarter, driven both by volume as we replenished both our and retailers’ inventories and by price/mix as we executed revenue growth management actions. We feel that our recovery is on firm footing as we enter the second half, and as we get past the fire and strike impact, we are in the early stages of recovering our profit margins in this business as well.”
North America business unit sales rose 12% to $2.3 billion during the quarter ended July 2, up 12% over the second quarter of fiscal 2021. Unit operating profit increased 5% as higher net sales were partially offset by high input and logistics costs as well as a one-time pension-related charge.
While Kellogg executives promoted the quarterly top-line strength, securities analysts participating in the call focused on the North America cereal business’ outlook once retailer inventories are replenished and what it may 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 that we have suggests or reinforces how strong these brands are, how relevant they are. The category … is very healthy. It’s showing incredible pricing power. Even the last 4 weeks is better than the last 13 weeks. The category is quite healthy. It’s versatile. It’s showing, especially in challenging times, that it is a very affordable meal for people. A bowl of cereal with a glass of milk is $1, and that’s really helping the category.”
A focused management team will benefit the North America cereal business once it is spun off, said Mr. Cahillane.
“… The only focus will be how to drive these great brands in a category that is showing good recovery,” he said. “The No. 1 focus of a new sales force will be these brands with the customers.”
Kellogg net income during the quarter was $326 million, equal to 96¢ per share on the common stock, and down from the year before when the company earned $380 million, equal to $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 its Asia Pacific, Middle East and Africa business unit sales were up 11% to $732 million year-on-year.
Net income for the first six months of fiscal 2022 was $748 million, equal to $2.20 per share, and flat with the same period of the previous year when the company earned $748 million, equal to $2.19 per share.
First half sales rose to $7.5 billion from $7.1 billion.
The strong half prompted the company to raise its full-year guidance.“We are raising our full-year outlook for net sales to organic growth of 7% to 8%, a sizable increase from our previous guidance of approximately 4% growth,” said Amit Banati, chief financial officer. “We are raising our full-year outlook for adjusted basis earnings per share to approximately 2% growth on a currency-neutral basis, up from our previous guidance of 1% to 2% growth.”