Kellogg Raises Outlook After Quarterly Sales Rise

By Helen Gray On Aug 4, 2022

Kellogg Co.

K 0.17%

lifted its outlook for the year and said consumer demand held up despite the cereal company raising its prices in recent months.

The maker of Pop-Tarts and Pringles said Thursday that charging more for its food helped the company offset higher costs for ingredients, trucking and labor. Kellogg also said it faced supply shortages in the second quarter.

Kellogg said it has told retailers about additional price increases for the ongoing quarter. Grocery stores tend to pass those down to consumers.

For the quarter ended July 2, Kellogg charged retailers nearly 14% more for its food on average. Consumers pulled back slightly, in part due to its lack of cereal inventory, Kellogg said, and sales volume slipped 1.5%.

“This has been wave after wave of price increases because of how persistent inflation has been,” said Kellogg Chief Executive

Steve Cahillane.

“What you’re seeing in supermarkets is elevated pricing across categories, and you’ll continue to see that,” he said.

Shares rose 1% on Thursday and were up about 16% so far this year.

Kellogg, like its peers

Coca-Cola Co.

Kraft Heinz Co.

and

Mondelez International Inc.,

said that after raising its prices, shoppers so far haven’t cut back much compared with previous periods of inflation. Several consumer-product and food companies have said they expect people to curb their spending more in the second half of the year.

Kellogg is in the midst of spinning off its North America cereal business and plant-based meat brands, a plan the company announced in June. Kellogg said the separation would help its cereal brands regain their footing on supermarket shelves and fuel faster growth in its stronger snack business.

As inflation climbs in the U.S., rising food and energy costs have pushed the nation’s most popular price index to its highest level in four decades. WSJ’s Gwynn Guilford explains how the consumer-price index works and what it can tell you about inflation. Illustration: Jacob Reynolds

The company on Thursday said its quarterly sales rose 12% on an organic basis, which strips out impacts from currency, acquisitions and divestitures.

Kellogg raised its outlook for organic sales to grow between 7% to 8% this year, up from its previous view of about 4%. It expects its adjusted operating profit to rise between 4% to 5%, up from its previous projection of between 1% to 2%.

Mr. Cahillane said Kellogg’s U.S. cereal business is recovering faster than expected after production was stunted by a plant-worker strike and a factory fire last year.

He said Kellogg’s cereal brands will do better as a stand-alone company. “There is a huge benefit that happens with singular focus——a sales force who’s only priority is cereal,” Mr. Cahillane said.

The challenge will be losing the benefits of scale in purchasing ingredients and the cost of splitting apart back-office operations like human resources and information technology, analysts said. Kellogg said it has experience navigating this from selling off its Keebler cookie business a few years ago.

The split of the business comes at a volatile time, when decades-high inflation and supply-chain disruptions from the pandemic are continuing to rattle food makers.

Kellogg executives previously anticipated industrywide supply-chain and inflationary pressures to subside somewhat soon, but now they think that won’t happen until closer to the end of the year.

“It’s not going to get back to any sense of normalcy, but we have some confidence that it will start to improve,” Mr. Cahillane said.

For Kellogg, its inventory levels at supermarkets are now mostly back to where they were before the pandemic, executives said, marking a significant moment for the company as it aims to improve its relationships with retailers while splitting apart its businesses.

Write to Annie Gasparro at [email protected] and Connor Hart at [email protected]