Kellogg Co forecast a smaller drop in annual profit than it had previously expected, as multiple price hikes for its breakfast snacks and cereals helped the corn flakes maker strengthen its margins.
The packaged food giant, like several other industry players such as PepsiCo, Conagra Brands and Hershey, has been consistently raising prices over the past year to safeguard margins from cost pressures tied to raw materials like sugar.
The company's strong forecast mirrors comments from packaged food peer Mondelēz International, which raised its full-year forecasts last week on the back of higher prices and robust demand.
"Benefits from pricing are expected to fade throughout the year, making sales volumes an increasingly important driver of sales," Edward Jones analyst Brittany Quatrochi said.
Kellogg's pricing rose by 14.7% in the reported quarter, driving organic volumes down 7.6%.
"Given mounting pressures on the consumer, we expect private label and promotional pressure to increase, which will impact volumes and likely limit upside to Kellogg's EPS in 2023," said RBC Capital Markets analyst Nik Modi.
Kellogg reported an adjusted profit of $1.25 per share in the quarter ended 1 July, surpassing market expectations of $1.11.
The Pringles maker said it expected 2023 adjusted profit per share to fall between 1% and 2%, compared with its prior forecast for a decline of 1% to 3%.
However, its second-quarter sales of $4.04 billion (€3.7 billion) were below analysts' forecast of $4.07 billion (€3.72 billion), signalling tapering demand for its cereals and snacks following multiple rounds of price hikes.
Pricing rose by 14.7% in the reported quarter, driving organic volumes down 7.6%.
Planned Separation Of Business
Recently, the company filed a Form 10 registration statement with the US Securities and Exchange Commission (SEC), as part of its planned separation into two businesses later this year.
The planned separation is 'on track' to take place in the fourth quarter of this year, the company said, and will see Kellogg split into Kellanova and WK Kellogg Co.
Kellanova, which accounted for approximately $12.6 billion (€11.3 billion) in net sales in 2022, will be a 'leading company in global snacking, international cereal and noodles, and North America frozen foods', the company added.