US food manufacturer Kellogg cut its guidance for full-year operating profits after reporting nine-month results.
The owner of the Special K cereal brand lowered its forecast for adjusted operating profit, on a currency-neutral basis, to flat after previously predicting growth of 5-7%. The downgrade was made to reflect “increased investments and continued mix shifts and costs, as the company expands its co-packed pack formats”, Kellogg said in its earnings release.
As a result of the cut in operating profit, the earnings per share growth outlook was also lowered to 7-8%, from 11-13%. The prediction for that metric had been increased in Kellogg’s second-quarter earnings results from 9-11%.
On a more positive note, the Michigan-based firm upgraded its net sales growth outlook to the upper-end of its previously announced guidance range, meaning it now sees the full-year result at 5%, compared to the 4-5% presented in the second quarter.
“In the third quarter, we boosted investment behind our brands, capabilities, and new pack formats,” chief executive Steve Cahillane commented in the release. “This investment, along with our expansion and acceleration in international markets, has returned us to top-line growth this year. Despite their near-term impact on profit, we’ll continue making these investments in the fourth quarter because we know they are putting us on a path for sustainable growth over time.”
Kellogg reported a 5.9% increase in nine-month reported net sales to US$10.24bn on a currency-neutral basis, with organic growth up 0.2% to $9.69bn.
Adjusted operating profit climbed 0.5% to $1.44bn based on the same currency criteria, while EPS was 10.4% higher at $3.39.
In third-quarter terms, net sales rose by almost 7% due to the acquisition of RXBAR in October 2017 and the consolidation of Kellogg’s Nigerian distributor Multipro in May this year.
Kellogg said it continues to make productivity savings from its decision to cease the direct store delivery (DSD) service in US snacks during 2017.
However, the company said its full-year net sales guidance still includes a 1% negative impact from the DSD transition, including price adjustments and the rationalisation of its SKU count.
“These [productivity] savings are helping to offset rising cost pressures, particularly transportation costs,” the company noted. But third-quarter operating profit was “held back by a significant increase in brand-building investment across several business units, as well as by co-packing and logistics costs related to expanding into new pack formats”.