Kellogg’s Profit Forecast Beats Estimates Because Of Hike In Prices Of Its Products

Cereal maker Kellogg Co’s forecast for profit growth for the full year was higher than the expectations of the market. This upbeat forecast was driven by higher product prices which helped the company to offset disruptions because of labour strikes and increasing costs of input during the fourth quarter.

Rise in freight charges as well as in input costs for ingredients such as wheat, corn, and edible oils because of disruptions in the global supply chain have significantly impacted companies ‘ packaged food business and have forced them to hike the prices of their products.

The fourth-quarter margins of the Kellogg were hit by a strike that started in October at its US cereal plants and carried on for almost three months, Kellogg said, as the company was forced to recruit temporary workers at higher wages. It said that this strike and higher labour costs would also impact its sales for the first half of the year.

In early December, the company’s production was hit by a small fire at one of the plants.

“After our supply was further disrupted by the fire and strike, we are recovering production, inventory and service levels and commercial programs in that (U.S. cereal) business”, Chief Executive Officer Steven Cahillane said on a call with analysts.

Despite the impediments, the company still anticipates reporting its adjusted profits per share for the full year to increase between 1 per cent and 2 per cent on a currency-neutral basis primarily because of increase in prices for its breakfast cereals and snacks such as Pop-Tarts and Pringles.

According to Refintiv IBES data, analysts on average expected a 0.1 per cent growth.

The forecast of the company also accounted for further inflationary pressures as well as the impact of the strike by its workers, Kellogg said

Shares of the Michigan-based company rose about 3.5 per cent after the announcement.

The company also reported a drop in its adjusted gross margin for the fourth quarter to 30.2 per cent compared to 34.2 per cent for the same period a year ago. The company’s net income attributable to it increased by more than two times to $433 million, or $1.26 per share for the same period.

Excluding items, Kellogg earned 83 cents per share, edging past estimates of 79 cents. The company also reported a drop in its net sales to $3.42 billion in the quarter but still was higher than the consensus estimate of analysts of $3.39 billion.

(Adapted from EconomicTimes.com)

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