On the money: Innovation helped offset difficult UK cereal market - Kellogg

Cereal giant Kellogg said the UK cereal category continues to be competitive but added that a focus on innovation has driven improvements over the last year. 

Kellogg yesterday (6 February) reported an 11.2% increase in full-year profit to US$961m, boosted by its recent acquisition of Pringles, growth in Latin America and improving results in North America.

The group's performance in Europe continued to lag, with net sales in the region down 3.8% to $691m in fiscal 2012. However, Kellogg emphasised that the decline reversed in the fourth-quarter, when sales increased 2.7%.

Speaking on the firm's earnings call, president and CEO John Bryant said the firm's performance in the European business had improved sequentially as the year progressed.

"In Europe, which was our most challenging region early in 2012, we saw improved internal sales performance as the year progressed."

In particular, he commented: "The cereal category in the UK continues to be competitive but we saw improvement. Recent innovations are all off to a good start and we are optimisitic as we start 2013."

Sanford Bernstein analyst Alexia Howard noted that Kellogg was performing "very well" on the back of innovation in cereal but pointed to "weakness" in the category as a whole.

Despite soft category trends, CFO Ronald Dissinger insisted that Kellogg was seeing improving volumes in the category, adding that it had gained around 70 bps in market share in the second half of 2012.

"What we're seeing in our business is it's really driven by innovation and by brand building. And we're seeing the business respond to that. So I'm confident that if the category in totality drives more brand building and more innovation, I think the category will respond to that."

Kellogg has continued to innovate and kicked off 2012 with the launch of a raft of products to its cereal, snacks and frozen portfolios in the US. In November, a new swathe of products were launched under its snack brands and the company last week added to its frozen food line in the US with the launch of products into its Special K, Eggo and MorningStar Farms ranges.

"Innovation is largely incremental in our categories and we're optimistic about the great lineup of new products we have ready for 2013," Dissinger said.

Despite the firm's optimisim on innovation, Kellogg referred back to Europe as a region that it said continues to remain a "difficult" area of growth in all categories, not just cereal.

Asked by Stifel analyst Chris Growe whether an improvement in sales is expected in Europe in 2013, Bryant sounded a confident note.

"We realise an improvement in Europe will take time but we are addressing the challenge, we have a new team in place and we expect an improvement in the region in 2013," Bryant said.

"Macroeconomic conditions in the region, especially in Southern Europe, continue to be difficult, but we do expect to see this region grow in profit in 2013.

"The region is undergoing one of the greatest integrations for Pringles and we have reorganised our Kellogg organisation there with a new leadership team, so we are confident about the future."

Kellogg's share price was up 1.72% to $59.10 at 11:42 ET yesterday.