Kellogg 3Q Profit Falls on Cereal Recall

Company attributes the majority of North American decline to weak cereal sales driven by heavy promotional pricing.

Kellogg Co. said Nov. 2 third-quarter earnings dropped 6% in response to a June cereal recall and lower competitive pricing.

The Battle Creek, Mich., cereal and snack maker reported third-quarter net earnings of $338 million. Earnings per share dropped 4% to 90 cents from the year-earlier period.

"We are disappointed with our third quarter performance which was due to softness in our businesses as well as a tough operating and deflationary environment driven by intense competition," said David Mackay, Kellogg's chief executive officer, in a prepared statement. "2010 has been a challenging year, and as a result, two weeks ago, we lowered our full-year guidance to reflect the operating challenges."

Kellogg lowered its full-year guidance on Oct. 21. The company expects internal net sales will be down approximately 1% for the year.

For 2011, Kellogg projects internal net sales growth will be in the low single digits. The company referred to 2011 "as a year of strengthening the business." Internal operating profit is expected to be flat to 2% lower. Earnings per share are expected to grow at a low single-digit rate.

"As we enter 2011, we feel positive about our strong commercial plans and higher levels of innovation, yet we are also pragmatic and realistic in our 2011 forecasts," McKay said.

Kellogg North America 's third-quarter sales declined 3%. The company attributes the majority of the decline to weak cereal sales driven by heavy promotional pricing.

North America operating profit also decreased 3%. Lower sales and volume as well as higher manufacturing costs and advertising investments were the primary contributors to the decline, according to the company.

Weaker European cereal and Russian snack sales contributed to a 6% decline in international sales.

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