UPDATE 4-Kellogg profit beats estimates, raises view

Thu Jul 30, 2009 12:38pm EDT

* EPS $0.92 tops Wall Street view of $0.83

* Raises full-year earnings view, ex-currency

* Sees less of a currency hit in 2009 than forecast

* Shares near flat (Adds company comments)

By Brad Dorfman

CHICAGO, July 30 (Reuters) - Kellogg Co (K.N) posted a higher-than-expected quarterly profit and raised its full-year earnings forecast on Thursday as costs for energy and grains eased while price increases helped lift revenue.

Like many food companies, the maker of Frosted Flakes and Pop-Tarts has seen an increase in sales as consumers eat more at home, rather than at restaurants.

Kellogg also raised prices to cope with higher costs for energy, grains and other raw materials. As commodity cost inflation eases, and the higher prices stay in place, Kellogg's margins get fatter.

The company said it expects commodity costs to rise about 4 percent for the year, but that is down from the 10 percent increase seen in 2008.

Even when commodity costs were soaring, Kellogg still invested in product development, cost-cutting measures and advertising to help its long-term business.

"It seems that the input cost headwind is officially a tailwind for these food companies," Edward Jones analyst Matt Arnold said. "You couple that with what this company always focuses on -- which is taking some costs out of the system -- and you get some nice margin improvement and another nice earnings" report.

Kellogg CEO David Mackay expects consumers to continue to eat at home even after the economy improves, in part because high unemployment has spooked them into being more frugal and in part because they have found they enjoy eating at home.

"My personal view is that when the economy improves, what we're seeing is going to be a generational change from the consumer perspective," he said during an interview. [ID:nN30351765]

But Mackay also said he expects the economy to remain "challenging" for at least the next year.

Kellogg's profit rose to $353 million, or 92 cents a share, in the second quarter from $312 million, or 82 cents a share, a year earlier.

Analysts on average forecast 83 cents a share, according to Reuters Estimates.

Sales fell 3.4 percent to $3.23 billion. But excluding the impacts of currency translation and acquisitions, sales rose about 3 percent, in line with the company's long-term target, Kellogg said.

North American cereal sales rose 4 percent in the quarter.

The company said its U.S. ready-to-eat cereal market share rose more than 1 percentage point in the quarter. The company also has seen share gains from lower-priced private-label competitors moderating, Mackay said.

Like many companies, Kellogg has been pushing a cost-saving message in its advertising, while also offering more coupons to attract customers, Mackay said.

Volume, or tonnage of products shipped, slipped 0.5 percent. Price increases and a shift in its sales mix toward higher-priced items boosted revenue 3.1 percentage points, the company said.

Kellogg said it now expects earnings for the year to rise 8 percent to 10 percent, excluding the impact of currency exchange rates.

In April, the company said it forecast earnings per share to rise in the high-single-digit percentage range in 2009, excluding the impact of the stronger U.S. dollar, which reduces the value of international sales.

The company now also expects currency to cut earnings per share by only 6 percent, down from the 8 percent hit it had forecast in April.

Kellogg shares rose earlier in the day, but were down 19 cents at $47.85 in early afternoon trading on the New York Stock Exchange. (Reporting by Brad Dorfman, editing by Maureen Bavdek and Tim Dobbyn)

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