The Kellogg company yesterday (26 October) reported strong sales growth for the third quarter, driven by product innovation, brand-building, sales execution and core growth.
Net earnings were up 2%, increasing to US$281.1m from $274.3m for the comparable period of last year. Diluted EPS was $0.70, a 6% increase from last year’s $0.66 per share. Net earnings for the first nine-months of the year were up 4% to $821.7m. EPS for the first nine-months increased by 9%, rising to $2.01 per share.
“We are pleased to report even better results than anticipated,” said Jim Jenness, Kellogg’s chairman and chief executive officer. “Our business approach and sustainable growth model have allowed us to continue to invest in our business while facing significant cost pressures. We enter the fourth quarter with good visibility and look forward to next year with confidence.”
Net sales in the third quarter increased by 8%, rising to $2.82bn. Excluding the effect of currency exchange, Kellogg’s internal sales increased by 6%, building on a similarly strong 7% growth posted during the third quarter of last year.
Kellogg North America’s net sales growth was approximately 7% for the third quarter and 8% for the first nine months of the year, again building on strong growth of 8% posted for the third quarter of last year.
North America Retail Cereal posted sales growth of 3% in the third quarter, driven by successful innovation, sales execution, and strong brand-building programs designed to support the introduction of new products and the company’s core brands, Kellogg said. North America Retail Snacks posted sales growth of 11%. The cookie, cracker, and wholesome snack product groups all reported strong sales growth. North America Frozen and Specialty Channels increased sales by 8% in the third quarter, with Eggo frozen foods, Morningstar Farms veggie foods, and the Food Away From Home businesses all contributing gains.
Kellogg also reported a strong international performance, with sales increasing 8%. In the cereal category the company reported share gains in most of the major regions in which it operates. Kellogg’s European business posted internal sales growth of approximately 6% in the third quarter and 5% for the year-to-date period. The company reported currency-adjusted sales growth of 7% in Latin America.
Operating profit in the third quarter increased by 5% to $487.6m, while for the year-to-date operating profit was up 1% to $1,421.3m and internal operating profit increased by 4%, in- line with the company’s guidance.
The gross profit margin in the third quarter was 45.1%, compared to 45.2% in the third quarter of last year, despite increased commodity, fuel, and benefit costs that decreased gross margins by 140 basis points. Cost inflation was offset by the company’s efforts to reduce raw material and packaging costs, increase productivity and operating leverage.
“Our business model is designed to provide sustainable, dependable rates of growth over the long-term. We expect that 2006 will be another strong year, one in which we made considerable investment in the future while absorbing significant cost inflation,” Jenness said, referring to the company’s investments in brand-building during the quarter.
On the back of these results, Kellogg raised its full year guidance to $2.48-2.50 per share, from its previous range of $2.45-2.49 per share. Kellogg also gave preliminary guidance for earnings in 2007 of $2.67-2.72 per share.
“We have maintained our focus, even in a period of significant inflation and continued competitive pressures. Our business approach is working and we have taken advantage of the flexibility it provides. Our model allowed us to do the right thing and invest for the future; this, in turn, provides us with additional confidence as we plan for next year,” Jenness concluded.
Kellogg shares were up yesterday from an opening value of $49.80, to close at $50.21.