Kellogg's investment in new low-carbohydrate and low-sugar food products paid off with a 7% increase in Q3 profits, prompting the firm to upgrade its full year forecast. In the face of rising fixed costs this performance suggests that Kellogg is right to target growth areas such as healthy snacks to maintain growth.

Cereal giant Kellogg has moved to increase its forecast earnings per share for 2004 to a range of $2.11 to $2.13, up from its previous range of $2.07 to $2.11 after announcing that Q3 profits rose 6.8%.

The rise in profits was helped by sales of new products such as fruit-based snacks and reduced-sugar cereals aimed at increasingly health conscious consumers. In an effort to promote the health benefits of its products, the company spent more on marketing brands such as the reduced carbohydrate Special K and Fruit Twistables snacks. Snacks sales overall rose 9%, suggesting that pushing these healthier options has paid off by helping to offset weaknesses in traditional categories such as cookies.

Sales in North America, Kellogg's home market, climbed 5.6%, partly as a result of price rises that were driven by higher commodity, energy and packaging costs. Kellogg will be encouraged that its North American sales growth was marginally greater than the 2% recorded by its close rival General Mills in its most recent quarterly statement. Both companies have confirmed plans to continue increasing marketing spend in order to defend their market share.

As the encouraging performance of its health oriented products indicates, a mature consumer goods giant such as Kellogg needs to stay abreast of the latest consumer trends if it wants to continue to deliver positive results. As rising commodity costs and other structural issues, notably higher energy costs, are seemingly here to stay for the medium term at least, broadening the appeal of its products, and targeting growth segments in the market through innovative marketing strategies will be key to ensuring Kellogg enjoys a healthy 2005.

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