UPDATE 3-Cereal helps Kellogg beat estimates, shares jump

Thu Apr 30, 2009 10:16am EDT

* EPS 84 cents vs Wall St 79 cent view

* Peanut-related recall costs 5 cents a share

* Sees 2009 EPS up high-single digits, ex-currency

* Sees 22 cents in 2009 up-front costs, up from 14 cents

* Shares up more than 8 pct in early trading (Adds analyst, company comment; byline)

By Brad Dorfman

CHICAGO, April 30 (Reuters) - Kellogg Co (K.N) posted a higher-than-expected quarterly profit on Thursday, helped by cost savings and stronger sales of cereal in North America.

The company said it still expects earnings per share to rise in a high single-digit percentage range this year, excluding the impact of the stronger dollar. It stuck to that forecast even though it plans to spend more on cost-cutting and other measures than was originally planned.

The clear view of 2009 earnings was viewed favorably by the market, with shares up more than 8 percent in early trading.

"There's very little visibility in a lot of stocks and that's something we think investors should be willing to pay for," Edward Jones analyst Matt Arnold said.

Food companies have seen pressure in recent months from retailers trying to cut back on inventories and shoppers switching to lower-priced, private-label competitors. At the same time, the stronger dollar lessens the dollar value of sales made outside the United States.

Some analysts had been concerned about the strength of Kellogg's cereal business, due to private-label penetration and increased promotional spending by rival General Mills Inc (GIS.N).

But North American retail cereal sales rose 6 percent, excluding currency and acquisitions. That was higher than the 3 percent sales growth the cereal business saw in 2008.

"This brand did fine and actually put up very respectable growth itself," Arnold said, noting that if General Mills also does well, it would show that consumers are turning to cereal, a relatively low-price choice, during the recession.

The maker of Rice Krispies cereal and Keebler cookies earned $321 million, or 84 cents a share in the first quarter, up from $315 million, or 81 cents a share, a year earlier.

Earnings in the latest quarter include about 5 cents a share in costs related to a recall of peanut-based products.

A salmonella outbreak linked to a supplier of peanut-based ingredients caused Kellogg and other food makers to recall products that contained peanuts. In February, the company said those recalls could cost it $65 million to $70 million.

Sales fell 2.7 percent to $3.17 billion. Excluding the impact of currency and acquisitions, sales rose 4 percent.

Kellogg said it now expects to spend 22 cents a share on cost-cutting and other measures to meet its goal of slicing annual costs by $1 billion by the end of 2011. That higher level of spending will continue in 2010, Kellogg said.

The company also said it now expects currency to cut earnings per share 8 percent in 2009, compared with is previous forecast for a 9 percent hit. Kellogg also now sees commodity costs rising about 4 percent, compared with its prior forecast of a 4 percent to 5 percent increase.

Kellogg's shares rose 8.4 percent, or $3.32, to $42.84 in early trading on the New York Stock Exchange. (Reporting by Brad Dorfman, editing by Maureen Bavdek)