First quarter unsettling for cereal maker

April 30, 2012
| By Pete Daly |
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Economic uncertainty in Europe is a major factor behind the announcement last week by Kellogg Co. of Battle Creek that the first quarter finished weaker than expected, causing the cereal giant to lower its predicted performance for the year.

The net sales decline of 1.3 percent was attributed by Kellogg to its European business and initial weak sales volume growth in certain U.S. categories. Reported operating profit decreased by 6.5 percent.

“We are obviously disappointed with the performance,” said Kellogg President and CEO John Bryant. "We faced more significant challenges in both Europe and in some categories in the U.S. than we expected.”

The company’s revised guidance for the year allows for continued investment in the business. Kellogg had sales of more than $13 billion in 2011.

Internal net sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, were approximately unchanged from the level posted in the first quarter last year at Kellogg.

However, internal operating profit declined by 6.1 percent.

Kellogg’s first quarter reported earnings were $1 per share, also unchanged from the earnings posted in the first quarter of 2011.

Earnings per share in the first quarter of 2012 benefited by 5 cents from hedges related to the pending acquisition of the Pringles business.

The company now expects that full-year internal net sales will increase at a rate between 2 and 3 percent. Full-year internal operating profit is expected to decrease at a rate between 2 and 4 percent as the result of the slower sales growth and continued investment in the business.

Kellogg expects earnings will range from $3.18 to $3.30 per share for 2012, with the Pringles deal lowering earnings per share by 6 to 11 cents.

“We have recognized and are addressing these issues” in Europe and the U.S. that are holding back sales and profits, said Bryant.

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