UPDATE 3-Kellogg profit up, sees 2009 currency hit

Thu Feb 5, 2009 10:50am EST

* EPS 53 cts ex-recall charge; Wall St EPS view 50 cts

* Sees high-single digit 2009 EPS growth, ex-currency

* Says currency could cut 2009 EPS by 9 pct

* Shares dip 0.3 percent (Adds analyst comment, currency forecast)

By Brad Dorfman

CHICAGO, Feb 5 (Reuters) - Kellogg Co (K.N), the world's largest cereal maker, posted higher-than-expected quarterly profit on Thursday, though it also cautioned that 2009 earnings could be hit hard by the stronger U.S. dollar.

The maker of Kellogg's Frosted Flakes and Keebler cookies said earnings per share could be reduced by as much as 9 percent at current exchange rates, due to the stronger dollar in relation to currencies like the British pound, euro, and Australian dollar. Shares of the company were down slightly in midmorning.

On Wednesday, rival food maker Kraft Foods Inc KFT.N cut its 2009 earnings forecast, in part due to the impact of the stronger dollar, which reduces the dollar value of sales booked outside the United States. [ID:nN04515573]

The trend has strengthened among food makers with significant overseas exposure, in some cases offsetting an easing in commodity costs that had been a major issue for the sector in the past two years.

"It shouldn't be a surprise that many of the multinational food companies are going to see most of their earnings gains wiped out by currency," said Edward Jones analyst Matthew Arnold. He also cited rising pension costs as pressuring earnings.

But he also noted that Kellogg stood by its earnings forecast, excluding the impact of currency fluctuations and said on the whole the company has produced consistent earnings growth.

Kellogg still expects a high single-digit increase in earnings per share, excluding the currency impact. Kellogg gets about one-third of its sales from outside North America.

PEANUT RECALL TAKES TOLL

Kellogg fourth-quarter profit rose to $179 million, or 47 cents a share, compared with $176 million, or 44 cents a share, a year earlier. Results for the 2008 quarter include a charge of 6 cents a share for a recall of peanut-related products.

Excluding the recall charge, earnings were 53 cents a share. Analysts on average forecast 50 cents, according to Reuters Estimates.

Kellogg and other food companies have had to pull some foods containing peanut products due to a salmonella outbreak at a Peanut Corp of America plant, which supplies peanut paste and other ingredients.

The 2009 forecast includes another 6 cents related to the peanut product recall, the company said.

Sales rose 5 percent to $2.93 billion. Excluding the impact of the stronger dollar, as well as an extra week in the quarter and acquisitions, sales rose 3 percent.

The company estimated that it lost 1 percentage point of market share in the U.S. cereal market in the fourth quarter, and said it is continuing to see lower prices from a competitor.

Kellogg expects commodity costs to rise 4 to 5 percent this year, the company said during a conference call with analysts. That is still well below the 10 percent increase it saw in 2008, when prices for wheat, corn and other commodities soared.

The company also said it expects 2009 sales to rise 3 to 4 percent excluding the impact of currency exchange rates and other items, rather than the mid-single digit increase it previously forecast.

Kellogg shares were down 12 cents or 0.3 percent at $43.37 on Thursday morning on the New York Stock Exchange, after rising as much as 1.7 percent earlier in the day. (Reporting by Brad Dorfman, editing by Dave Zimmerman and Matthew Lewis)

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