Chicago: Kellogg Co posted a higher-than-expected quarterly profit and raised its full-year earnings forecast on Thursday as costs for energy and grains eased while price increases helped lift revenue.
Like many food companies, the maker of Frosted Flakes and Pop-Tarts has seen an increase in sales as consumers eat more at home, rather than at restaurants.
The company also raised prices to cope with higher costs for energy, grains and other raw materials. As commodity cost inflation eases, and the higher prices stay in place, Kellogg’s margins get fatter.
The company said it expects commodity costs to rise about 4% for the year, but that is down from the 10% increase seen in 2008.
Even when commodity costs were soaring, Kellogg still invested in product development, cost-cutting measures and advertising to help its long-term business.
“It seems that the input cost headwind is officially a tailwind for these food companies,” Edward Jones analyst Matt Arnold said. “You couple that with what this company always focuses on -- which is taking some costs out of the system -- and you get some nice margin improvement and another nice earnings” report.
Kellogg’s profit rose to $353 million, or 92 cents a share, in the second quarter from $312 million, or 82 cents a share, a year earlier.
Analysts on average forecast 83 cents a share, according to Reuters Estimates.
Sales fell 3.4% to $3.23 billion. Yet excluding the impacts of currency translation and acquisitions, sales rose about three percent, in line with the company’s long-term target, Kellogg said.
North American cereal sales rose four percent in the quarter.
Volume, or tonnage of products shipped, slipped 0.5%. Price increases and a shift in its sales mix toward higher-priced items boosted revenue 3.1 percentage points, the company said.
Kellogg said it now expects earnings to rise 8-10%, excluding the impact of currency exchange rates.
In April, the company said it forecast earnings per share to rise in the high-single-digit percentage range in 2009, excluding the impact of the stronger US dollar, which reduces the value of international sales.
The company now also expects currency to cut earnings per share by only six percent, down from the eight percent hit it had forecast in April.
Kellogg shares rose 26 cents to $48.30 in morning New York Stock Exchange trading.