August 1, 2019 / 12:48 PM / 16 days ago

Kellogg results beat forecasts on North America demand, shares surge

(Reuters) - Kellogg Co (K.N) beat Wall Street expectations for quarterly sales and profit on Thursday, and the food maker’s shares rose sharply as investments in marketing and product development drove higher demand for snacks, frozen waffles and meatless burgers in North America.

FILE PHOTO: Kellogg's corn flakes and other products of U.S. Kellogg Company are offered at a supermarket of Swiss retail group Coop in Zumikon, Switzerland December 13, 2016. REUTERS/Arnd Wiegmann/File Photo

Kellogg makes Pringles, Pop-Tarts, Eggo Waffles and a wide range of breakfast cereals including Corn Flakes. The Battle Creek, Michigan-based company has been spending more on advertising and developing new products to suit changing consumer preferences for healthier food, premium products and smaller portions.

“We’re literally selling every Eggo that we can make, we have new capacity coming online,” Chief Executive Officer Steve Cahillane told Reuters, attributing the brand’s growth to the launch of high-protein waffles and frozen french toast. A marketing tie-up between Eggo and Netflix’s (NFLX.O) Stranger Things is expected to help further boost sales, he said.

“We love the show, we think it’s helped Eggo resonate.”

Net sales from North America, which accounts for nearly two-thirds of Kellogg’s revenue, rose 1% in the second quarter ended June 29. The North America unit has not grown sales by this much since the first quarter of 2013, according to J.P.Morgan analyst Ken Goldman.

Kellogg’s Morningstar brand, which makes plant-based nuggets and burgers, also drove sales, Cahillane said. Plant-based meat alternatives have enjoyed booming sales as Americans have grown more worried about health risks from eating meat, animal welfare and the environmental hazards of intensive animal farming.

Shares were up 9.5% in morning trade on the New York Stock Exchange at 63.75, paring earlier gains of 12%.

The company’s 2018 acquisition of a 50 percent stake in Multipro - a sales and distribution company in Nigeria and Ghana - helped drive a 23 percent jump in sales from the company’s Asia, Middle East and Africa unit.

Total net sales increased 3% to $3.46 billion, beating the average analyst estimate of $3.41 billion, according to IBES data from Refinitiv. On an organic basis, excluding acquisitions, divestitures and foreign exchange impact, sales rose 2.3%.

Excluding items, the company earned 99 cents per share, beating expectations of 92 cents.

Net income attributable to the company tumbled 52% to $286 million due to restructuring and divestment costs and a lower tax rate in the prior-year period. Kellogg sold Keebler biscuits and a handful of other brands for $1.3 billion in April, and announced plans in May and June to revamp its European and North American operations.

Earnings were pressured by higher input costs and a strong dollar, Kellogg said. Consumer goods companies have struggled for over two years with a surge in commodities prices and transportation expenses.

Reporting by Richa Naidu in Chicago and Soundarya J in Bengaluru; Editing by Arun Koyyur and David Gregorio

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