Kellogg sees top-line growth moderate, looks to emerging markets to stimulate sales

Posted by Daniel Palmer on 13th November 2009

Kellogg said today (12 November) that it has seen the pace of its net sales growth moderate over the past year, with expansion held back by limited opportunities in high-growth, emerging markets.

Speaking at the group’s investor day, Kellogg CEO David Mackay said that the group had seen slower top-line growth this year than in the previous four years due to the cyclical nature of the market, which has seen the cereal giant pushed through fewer price increases.

The company expects sales growth of 3-4% this year, compared to a growth rate of around 8% between 2004 and 2008.

“If you go back and look at the cycles that you see in the food industry… in 2004-08 I think most people’s top line came up in that period, whereas if you look back at the late nineties and early 2000s you will see more moderate growth,” Mackay suggested.

“Each four to seven years, you will hit a period where pricing is more dominant and then, when commodity prices become more benign and pricing moderates, the top line goes down. If you look at 2009 for us, we are investing back in the consumer. We took pricing in 08 but that is starting to roll off.”

Mackay said that he expected growth rates across the US and Europe to be “broadly the same” while Latin America is expected to deliver a “slightly higher top line”.

One way to significantly boost the top line would be to expand into high-growth emerging markets, Mackay added.

“As far as emerging markets go, we have been talking for a number of years about our desire to compete in emerging markets, as long as we can find an entry vehicle that will start returning to shareholders in a short space of time… If we can participate in emerging markets in cereal and snacks in a way that is going to give good returns to shareholders we will do that,” he said.

However, Kellogg is yet to identify acquisition targets that would significantly boost its presence in emerging markets at a price that will ensure swift returns to shareholders, Mackay said.

“We’ll keep looking for opportunities, but unfortunately they aren’t as frequent as we’d like.”

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