Kellogg boosts annual profit outlook on higher prices

By Aatrayee Chatterjee and Mehr Bedi

(Reuters) -Kellogg Co on Thursday 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.

However, the packaged food giant fell short of second-quarter sales estimates, after it failed to attract customers grappling with still high inflation.

Shares of the Michigan-based company were down marginally in early morning trading.

While price increases gave the Honey Loops maker confidence to raise its outlook, sticky inflation straining household spend has forced customers to push back on further hikes, hurting volumes.

“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 (NYSE:)’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.

The company, also known for Pringles and Pop-Tarts, expects its 2023 adjusted profit per share to fall between 1% and 2%, compared with a prior forecast for a decline of 1% to 3%.

Its second-quarter sales of $4.04 billion were below analysts’ forecast of $4.07 billion, signaling tapering demand for its cereals and snacks in the face of higher prices.

Kellogg reported an adjusted profit of $1.25 per share in the quarter ended July 1, surpassing market expectations of $1.11.