Kellogg 3Q profit rises on strong brand loyalty

By SARAH SKIDMORE

posted: 27 DAYS 22 HOURS AGO

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PORTLAND, Ore. -Consumers' devotion to their favorite cereal and snack brands and a continued consumer focus on eating at home helped boost Kellogg Co.'s profit 6 percent in the third quarter.

Shoppers have stayed true to the food maker's brand-name products during the economic downturn, particularly in North America where cereal and snack food sales continued to grow. Its products — such as Rice Krispies and Special K cereal — are seen by many as a cheap meal and continue to be helped by more consumers eating at home to save money.

Kellogg, based in Battle Creek, Mich., reported Thursday that its revenue was nearly flat at $3.28 billion, due in part to the effect of the fluctuating value of the dollar during quarter.

Kellogg's CEO David Mackay said the tough economy has placed significant pressure on consumers, but he said the company said it has used the conditions as an opportunity to grow — emphasizing the affordability of its foods for shoppers and investing in advertising at lower costs than normal.

This is on top of long-term productivity improvements and other cost reductions at the company that have helped boost its profit for several quarters.

Kellogg reported that it earned $361 million, or 94 cents per share, for the period ended Oct. 3, up from $342 million, or 89 cents per share, in the same period a year earlier.

"The company continues to put up solid quarters time and time again," said Edward Jones analyst Matt Arnold. "I think it's a reflection of their philosophy that they spend and reinvest in their brands religiously."

Kellogg said it plans to increase advertising spending by double-digits to help the long-term growth for the company, as well as continue to spend on developing new products.

Arnold said the success of that strategy is showing up not just in the quarter but in the company's longer-term outlook, particulary for 2010.

Kellogg on Thursday also lifted its full-year earnings guidance. It now expects a 2009 earnings per share increase of 10 percent to 12 percent, up from a prior forecast for 8 percent to 10 percent growth.

And for 2010, Kellogg affirmed a forecast a 10 percent to 12 percent earnings per share growth, which on a currency neutral basis would put it in the range of $3.40 to $3.52

Analysts predict 2010 profit of $3.51 per share.

Mackay said he anticipates the economy isn't likely to improve through 2010 and consumers will likely continue to feel some pressures. But he said Kellogg continues to be resilient and its products are relevant to consumers. And given the company's strong balance sheet and long-term improvements, he said Kellogg should continue to hold a strong financial position.

The news pleased investors who sent shares of Kellogg up 87 cents, or nearly 2 percent, in midday trading Thursday.

The performance bested the predictions of analysts surveyed by Thomson Reuters, who were looking for earnings of 84 cents per share on sales of $3.27 billion. Analysts' estimates normally exclude one-time items.

2009-10-29 12:52:45