Kellogg raises sales forecast as price hikes offset strike impact

Kellogg’s Cornflakes, owned by the Kellogg Company, are for sale at a store in Queens, New York, U.S., February 7, 2022. REUTERS/Andrew Kelly/File Photo

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  • Kellogg plans to accelerate price increases
  • Warns of the impact of the strike during at least the first half of the year
  • Reports Q1 adj. EPS of $1.10 beating estimates by $0.93
  • First-quarter net sales rise 2.4% to $3.67 billion

May 5 (Reuters) – Kellogg Co (KN) raised its 2022 forecast on Thursday, betting on further price hikes to help counter the impact of supply shortages stemming from a strike by workers at U.S. factories. the company last year and the war in Ukraine.

Shares of the Michigan-based company rose 4% after also beating first-quarter earnings estimates.

Costs for freight and ingredients such as wheat, corn and edible oils rose last year due to pandemic-induced disruptions in the global supply chain, forcing the packaged food industry to increase costs. product prices to cushion the blow to their profit margins.

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Kellogg, which also makes Pringles and Eggo waffles, said it was increasing the pace of price increases it was imposing on consumers as costs soared, and expected demand for some cereals to rise. slow as soaring global inflation bit into purchasing power.

Regarding shoppers swapping Kellogg products for less expensive items, CEO Steve Cahillane said “we haven’t seen the evidence of that yet, but as we look to the future – just because inflation is so intense and because the benefits of the stimulus money are so great – our prediction is it (will) have pressure.”

The company plans to emphasize the affordability of a bowl of cereal and milk as a meal in marketing and merchandising, Cahillane said.

“It’s convenient and it’s very affordable when you think about the number of bowls” in a box, he says.

The company’s cereal sales in North America fell 10.3% in the first quarter due to a nearly three-month strike that began in October at its factories that make Froot Loops, Corn Flakes and other cereal brands.

Kellogg warned grain shortages resulting from the strike could last at least the first half of the year.

Russia’s invasion of Ukraine is also expected to hurt supply in the second half, Kellogg said, as that part of Europe is a major source of ingredients for packaged food companies.

Kellogg relied on palm oil from Indonesia due to a lack of sunflower oil from Ukraine after the Russian invasion earlier this year, Cahillane said. Kellogg was unaffected by Indonesia’s palm oil export ban, which is expected to be short-lived, he said. Read more

Analysts said Kellogg raising its organic sales growth forecast for 2022 to 4% from 3% despite setbacks was a relief for investors.

“Investors are very concerned about Kellogg’s ability to maintain its earnings outlook, especially given the company’s potential exposure to Eastern European wheat,” said Ken Goldman, an analyst at JP Morgan.

“Today’s results may allay many of those fears, at least for now.”

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Reporting by Uday Sampath in Bengaluru and Jessica DiNapoli in New York; Editing by Krishna Chandra Eluri and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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