February 8, 2018 / 1:23 PM / 3 years ago

Kellogg sales top estimates as acquisitions help

(Reuters) - Cereal maker Kellogg Co’s (K.N) sales topped analysts’ forecasts in the fourth quarter, benefiting from the acquisitions of protein bar maker RXBAR and Brazilian food group Parati.

Kellogg's cereal is shown on display during a preview of a new Walmart Super Center prior to its opening in Compton, California, U.S., January 10, 2017. REUTERS/Mike Blake

As many U.S. consumers shun breakfast cereals, viewing them as sugary and containing too many artificial ingredients, Kellogg has diversified into food seen as more healthy and also invested substantially outside the United States.

The maker of Corn Flakes and Fruit Loops said on Thursday sales in the business that includes RXBAR, Kashi whole grain cereals and Eggo waffles, rose more than 9 percent year-over-year to $412 million in the quarter ended Dec. 30.

Sales in both the U.S. morning foods and snacks businesses — that make up some 43 percent of total revenue — fell about 5 percent each.

“Ongoing weakness in the U.S. cereal and snacks business is a concern,” said Susquehanna analyst Pablo Zuanic said in a note to clients.

Still, total sales rose 3.6 percent to $3.21 billion, exceeding analysts’ average estimate of $3.08 billion, according to Thomson Reuters I/B/E/S.

Shares of Kellogg rose 3 percent to $66.08 on Thursday morning.

The Battle Creek, Michigan-based company reported a net income of $428 million, compared to a net loss of $53 million a year earlier, when it took a charge to deconsolidate its Venezuelan unit. Excluding one-time items, Kellogg earned 96 cents per share, meeting analysts’ estimates.

Earnings also benefited from a tight leash on costs as selling and general expenses dipped nearly 26 percent.

Kellogg has stopped distributing products directly to stores, switching to its more widely used warehouse model to lower expenses.

“Our transition out of Direct Store Delivery in U.S. Snacks freed up resources that we are reinvesting behind our brands”, Kellogg Chief Executive Steve Cahillane said.

The integration of Parati tripled Kellogg’s size in Brazil, while investments in joint ventures in Africa and China were helping grow its business overseas, Cahillane added.

For 2018, Kellogg expects net sales to remain unchanged year-over-year. Adjusted earnings are forecast to increase 9 percent to 11 percent, with the recent U.S. tax reform contributing 5 to 6 percentage points of growth.

Reporting by Sangameswaran S in Bengaluru; Editing by Sai Sachin Ravikumar

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