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April 23, 2012

US: Kellogg issues profit warning

US food group Kellogg today (23 April) issued a surprise profit warning amid "significant challenges" in its domestic market and in Europe.

By Dean Best

US food group Kellogg today (23 April) issued a surprise profit warning amid “significant challenges” in its domestic market and in Europe.

Kellogg cut its forecasts for earnings per share, operating profit and net sales. It pointed to its European unit, “initial weak volume growth in certain US categories” and plans to “invest in future growth”.

The company now estimates its earnings per share in 2012 will be US$3.18-3.30. In February, Kellogg forecast EPS would increase by 2-4% from the $3.38 it booked in 2011.

Two weeks later, it announced the planned acquisition of Pringles, which it said would hit EPS in 2012 by $0.11-0.16 a share. Today, Kellogg forecast the deal would lower EPS by $0.06-0.11.

The cut to its earnings guidance follows the lowering of its forecasts for operating profit and sales after both fell in the first quarter of 2012.

Operating profit dropped 6.5%, with underlying operating profit, which excludes foreign exchange, M&A and disposals, was down 6.1%. The result has led Kellogg to predict that its annual underlying profit will be 2-4% lower in 2012 than in 2011. It had forecast for it to be “unchanged or slightly greater” this year.

Kellogg’s net sales dropped 1.3% in the first quarter. Underlying net sales were “approximately unchanged” year-on-year. The company now expects net sales to increase by 2-3% in 2012, down from a previous forecast of 4-5%.

“We are obviously disappointed with the performance of the company in the first quarter of 2012,” Kellogg president and CEO John Bryant said. “We faced more significant challenges in both Europe and in some categories in the US than we expected. We have recognised and are addressing these issues, and have provided revised guidance that allows us to continue to invest in the business. This investment is at the core of our operating principles, it’s the right thing to do for the health of the business, and it will help drive future growth.”

Kellogg will report its full first-quarter results on Thursday.

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