BATTLE CREEK, MICH. — Showy growth numbers from many snack brands helped Kellogg Co. generate better-than-expected financial results in its first quarter ended April 2. strike and fire of the year faster than expected.

In response to the results and improved forecasts for 2022 sales, Kellogg Co. shares soared as much as 4.7% on May 6 on the New York Stock Exchange (a day the S&P 500 fell down 2.8%), and closed the session at $70.23, up $2.38 per share.

Kellogg’s first-quarter net income was $424 million, or $1.24 per share on common stock, up 15% from $371 million, or $1.07 per share, in the first quarter. quarter of 2021. Net sales were $3.67 billion, up 2.5% from $3.58 billion a year earlier.

“The strength of our portfolio is evident as we have more than offset the sales and cost impact of the resumption of North American grain supply with continued snack growth momentum around the world,” said Steven A. Cahillane, President and CEO.

While North America was the company’s weakest region globally, Cahillane was pleased with its performance in the quarter.

“The team has done an excellent job of restoring and rapidly increasing production at our U.S. grain mills following the fire and strike in the second half of last year,” Cahillane said in a conference call on Tuesday. May 5 with investment analysts. “Our inventory is gradually approaching normal levels as expected, allowing us to begin replenishing retailer inventory earlier than expected in the first quarter.”

Yet it’s the company’s snacks business, fueled by price realization, that has driven the company’s growth in the United States and around the world, Cahillane said.

“Our largest portfolio segment, developed market snacks, continued to deliver strong growth, led by world-class brands like Pringles, Cheez-It and others,” he said. “And our emerging markets have collectively sustained double-digit growth. So even in a quarter where one of our businesses, North American grains, was particularly weak, down 10% year-over-year due to a lack of inventory , this was more than offset by the momentum of the rest of our portfolio. »

Regarding pricing, Mr. Cahillane said, “In an environment where cost inflation is too high to be covered by productivity alone, we leveraged our improved revenue growth management capabilities to price effectively. We have been pricing since cost inflation began to accelerate in the second half of 2020, and we have accelerated as market-driven cost inflation worsened.

Overall, organic net sales growth was 8% in Europe, 6% in Latin America and 17% in AMEA (Asia, Middle East and Africa).

“These are exceptional growth rates,” Mr. Cahillane said. “And in North America, where last year’s fire and strike left us with low grain inventories, and therefore lost sales, our reported and organic net sales were still down by less than 1%. In fact, excluding grains, the rest of our North American business was up 3-4% year-over-year, even against tough comparisons. »

First-quarter operating profit from Kellogg’s North American business was $345 million, down 11% from $379 million in 2021. Sales were 2. $11 billion, down 0.9%. Breaking down the change in sales, Kellogg said volume fell 8.3% while price/mix contributed a positive 7.4% to quarterly results.

While the company’s cereal business lagged due to supply constraints (low inventory levels due to the 2021 fire and strike), snack sales increased 5% in course of the quarter. Cahillane said consumption grew faster than sales, up 8% in the quarter for Pringles alone (after double-digit growth a year earlier).

“Cheez-It also maintained its strong momentum, increasing consumption by double digits, with the new Puff’d platform proving complementary to both the Snap’d platform and the core cracker line,” did he declare. “But we didn’t just gain market share in crackers thanks to Cheez-It. We also outpaced the category with the Club and Town House brands. Pop-Tarts recorded double-digit growth in consumption, as did Rice Krispies Treats, with both brands maintaining excellent momentum on the strength of effective marketing programs and incremental innovation. And while we’re at it, Nutri-Grain has also grown double-digit consumption, and RX (RXBAR) continues to reaccelerate its growth as consumers get moving again. Our snack business in North America therefore remains very strong. »

To demonstrate progress in restoring its grain business, Cahillane displayed a chart on the analyst call showing the company’s market share bottomed out at around 23% in January, versus around 28% before the strike. Since then, market share has steadily increased, approaching 27% at the end of the quarter. He said this progress represents the best lens to visualize the underlying health of the North American grain business.

“If you look at the year-over-year performance and share of U.S. grain, it’s clearly still down, but that’s based on low inventories and a lack of trading activity,” he said. declared. “But when you look at the sequential performance of the business, our goal is each week to continue to build our TDPs (total distribution points) and each week to continue to accelerate our sharing momentum and get back in our place because the brands are still incredibly strong, the relationships with retailers continue to be very, very strong, and we’re working together to put this business back in its place.

Mr. Cahillane completed his remarks on North America with an update on new products. He said Cheez-It Puff’d enjoys a stronger launch than his successful Cheez-It Snap’d platform launched a few years ago. It also highlighted Club Crisps in its cracker business and Pop-Tart innovation, including a new flavor, Snickerdoodle; a line called Pop-Tarts Simply, with simple ingredients; and the return of a “fan favorite”, the Frosted Raisin. He also noted pending innovation in Eggo and MorningStar Farms.

Also during the call, Mr. Cahillane drew attention to the remarkable growth of the company’s snack brands globally and the continued strength of its business in Europe.

He shared a slide showing that the Pringles brand has seen double-digit growth in many global markets with strong growth from Cheez-It as well.

“Pop-Tarts continues to grow in the US, but also look at its growth rates in markets like the UK and Mexico,” he said. “Rice Krispies Treats is experiencing explosive growth in multiple markets outside of the United States as we put more focus and support behind this unique brand. Not only do these brands continue to grow in North America, but this chart can help you give a glimpse of their international potential. Apart from Pringles, these brands are in the very early days of their expansion, which is part of our strategy. And their growth rates reflect their long-term potential.

Mr. Cahillane said the business in Europe has performed well for four consecutive years, demonstrating that its results are not an anomaly.

“There aren’t too many companies like ours talking about Europe as a growth engine for their business, but it is for us,” he said.

He also acknowledged the challenges in Europe, starting with the war there. He said Russia and Ukraine account for less than 1.5% of the company’s total net sales and less than 10% of our sales in Europe.

The company suspended shipments and investments in Russia. The effects of this suspension will be felt from the second quarter. The difficulties extend beyond lost sales to Russia, he said.

“Obviously it’s a tougher environment now,” he said. “We are seeing inflation in continental Europe. You haven’t seen this for a long time. What used to be a deflationary environment has changed. It is therefore clear that this will put pressure on the consumer. But what we’re seeing right now is, obviously, it’s pervasive everywhere. And so it’s not just at the grocery store. As in all regions of the country, it is very varied. And the fact that we’re in the kinds of businesses that we’re in is a good place to be in an environment like this. And when you have strong marks inside, it’s even better. We are therefore very confident in the continuation of European performance. »

With its global footprint, Kellogg operates in many markets dependent on imported ingredients from Russia and Ukraine. These include a rapidly growing noodle market for Kellogg in Africa (noodles are a popular breakfast food in Africa) through its 2015 joint venture with Tolaram Africa.

“There’s clearly a lot of wheat coming in from Russia and Ukraine, and they’ve looked around the world for supplies to replace it, and they’ve done it very effectively,” Mr. Cahillane. “And it’s really across the world. And so they have a line of sight for good product production. They have a line of sight to meet our noodle forecast for the rest of the year and even next year.

Updating its forecast for the year, the company raised its outlook for sales growth from 3% to 4% while reaffirming earnings per share growth from 1% to 2%.

Amit Banati, senior vice president and chief financial officer, said the company’s operating profit “remains on an upward trajectory.”

“The main driver of the decline in our gross profit was the transitory impact of the fire and strike we experienced in the second half of last year,” Banati said. “This impact not only reflects the loss of year-over-year sales, but also significant costs.”

He said that due to supply constraints, advertising and promotion investments were well below normal in the first quarter and that these expenses will be “gradually restored throughout the year in line without recovery of the offer”.

Other comments from Mr. Banati included that observational price elasticity was again becoming evident in several markets, but was below historical levels. Additionally, he said that in the company’s revised guidance, the company had increased its built-in numbers for both inflation and costs associated with supply disruption.

Asked by an analyst, Mr Banati said the inflation estimate started in mid-teens and rose by two to three points.

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