Kellogg Sales Hold Strong in the Second Quarter

According to the company’s latest financial report, second-quarter sales exceeded expectations at Kellogg Co., especially for ready-to-eat cereal and frozen foods, prompting management to raise earnings and sales guidance for the full year. Cereal consumption surged 16% during the quarter, and the company’s Eggo brand enjoyed 26% growth.

Kellogg’s net income in the second quarter ended June 27 was USD354m, equal to USD1.02 per share on the common stock, up 21% from USD292m, or 84 cents per share, in the second quarter last year. Sales were USD3.5bn, unchanged from last year.

The year-to-year sales comparison was worsened by the July 2019 divestiture of the Kellogg cookie, fruit snack, pie crust and ice cream cone business, which the company said carved 6% out of net sales in the second quarter of 2020. Adverse foreign exchange moves cut another 3% from sales. Excluding these items, Kellogg’s net sales in the second quarter rose by more than 9%.

“Amidst the COVID-19 crisis, demand for packaged foods for at-home consumption remained elevated for longer than anticipated,” the company said. “This drove higher sales of the company’s products in retail channels, more than offsetting a related decline in foods sold in away-from-home channels.”

Investors were pleased. With the overall market dipping in early trading July 30, Kellogg shares surged as much as 2.7%, hitting an intraday high of USD72.88, up USD1.94 a share.

Adjusted operating profit in the second quarter was USD562m, up 24% from the second quarter of 2019.

The strong second-quarter results followed an extraordinary sales surge in March, including ready-to-eat cereal, up 43%; crackers, up 40%; waffles, up 45%; and plant-based meat alternatives, up 66%. In total, sales in the second quarter rose more than in the first.

Kellogg had taken a cautious stance after the first quarter about its outlook and left full-year guidance unchanged but is now raising guidance for the year. The company said earnings per share in 2020 are expected to decline 1% from 2019, versus earlier guidance of a 3% to 4% decline. Organic net sales in 2020, excluding the divested businesses, are projected to be up 5% for the year, versus previous guidance of up 1% to 2%.

Kellogg North America operating profit jumped 44% in the second quarter with net sales up 11% on an organic basis. As reported, sales were up 1%. Kellogg attributed the surge in profits to “operating leverage, delayed investment, and a decrease in one-time charges that more than offset the absence of results from the divested businesses and incremental costs related to safety and increased production and distribution related to the crisis.” Excluding special items, operating profit was up 23%.

The company gained share in its wholesome snacks category, with Pop-Tarts growing at a double-digit rate and Rice Krispies Treats growth as well. Other, more on-the-go oriented products in the category sustained declines during the quarter, including RXBAR.

In its North American frozen foods business, the company’s Eggo brand enjoyed sales growth of 26% and Kashi sales rose 19%, with the company gaining share in its three product segments of waffles, pancakes and French toast.

Six months through the year, Kellogg’s net income was USD704m, or USD2.04 per share, up 22% from USD577m, or USD1.66 per share, in the first half of 2019. Sales were USD6.9bn, down 2% from USD7bn last year. Organic net sales were up 9%.

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