Kellogg surpasses expectations, sees private label growth moderating

Posted by Daniel Palmer on 31st July 2009

Kellogg Company has posted double-digit growth in second quarter, surpassing expectations of analysts as private label growth begins to slow.

David Mackay, Kellogg’s Chief Executive Officer, said the cereal manufacturer had so far managed to efficiently negotiate challenging conditions and ongoing cost pressures.

“We remain committed to delivering sustainable and dependable performance as we work through the current tough economic environment,” he said. “This focus continued to provide strong returns in the second quarter which were ahead of expectations. We now enter the second half of the year with increased confidence in our ability to deliver on our long-term targets, as well as the visibility and flexibility to increase our investments for future growth.”

Kellogg Company is on track to deliver $1 billion in annualised savings from efficiency initiatives by year-end 2011. In addition, the Company announced that it plans to increase up-front cost investments for savings initiatives while increasing guidance for the full year.

Second quarter sales were down three per cent on last year but, after stripping out the negative impacts of divestments and foreign currency movements, they rose 3%.

Kellogg North America posted second quarter net sales growth 3% on an internal basis, while their international division saw net sales strengthen 2% on an internal basis. Latin America was the primary catalyst for the steady international performance, with Asia Pacific growth relatively stable at three per cent. The company was hurt by difficult negotiations with retailers in Europe and Australia.

Private label growth moderates

Mr Mackay believes that sales growth of retailer branded products has begun to level off as the economy shows signs of improvement.

“The one thing I would say on that is I think we’ve started to see its growth moderate in many categories, not only in the U.S. but around the world,” he said. “One would call it sequentially flat, whether you’re looking at cereal, you know, crackers, waffles. When you go to the UK, Australia, Canada private label is down.”

“So while it did have a very strong spurt of share growth, it’s now leveling off a little bit.”

Kellogg raises full-year guidance

Supported by the strong first half performance and greater savings realisations, the maker of Corn Flakes now believes they will top previous estimates for the full year.

“With strong brands, solid business fundamentals and our focus on managing the business for the long term, Kellogg Company is well positioned in the marketplace to continue delivering sustainable and dependable performance,” Mr Mackay concluded.