May 3, 2018 / 12:16 PM / 5 months ago

Kellogg tops profit estimates, makes west Africa investment

(Reuters) - Kellogg Co’s (K.N) quarterly results topped Wall Street forecasts on Thursday, getting a boost from sales of snacks such as Pringles chips and protein bars, and strengthened its bet on growth in Africa with a more than $400 million investment.

Kellogg's 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

Demand for breakfast cereals has been on slide in the United States over the past several years, forcing the company to seek other areas of growth.

It has focused on growing its snacks brands and expanding in international markets, while also cutting sugar in cereals to revive sales at its legacy business that makes Froot Loops and Corn Flakes.

While sales of cereals continued to decline, strong sales of its snacks as well frozen foods such as Eggo waffles and MorningStar Farms veggie patties, lifted overall sales by 5 percent in the first quarter.

Kellogg’s shares rose 2 percent to $57.74 in early trading.

“U.S. cereal remains a challenge ... but we were pleased to see signs of stabilization with declines lessening from last quarter,” Edward Jones analyst Brittany Weissman said.

The investment in Nigeria’s Tolaram Africa Foods will give Kellogg greater access to west African markets.

It is the latest in a handful of deals Kellogg has sealed in the past few years to diversify its business, including RXBAR and Brazilian snacks group Parati.

Overall sales of $3.40 billion topped analysts’ expectations of $3.30 billion, according to Thomson Reuters I/B/E/S.

Kellogg said it expects net sales to rise between 3 percent and 4 percent in 2018 on a constant currency basis. The forecast includes gains from the Tolaram investment and translates to sales of $13.31 billion to $13.44 billion.

The company also maintained its full-year adjusted earnings per share forecast, in contrast to other food companies such as Hershey Co (HSY.N) and General Mills (GIS.N) that cut profit estimates, citing higher freight and commodity costs.

Kellogg also flagged higher freight costs but said they would be offset by savings from an ongoing restructuring program and a shift to warehouse distribution.

“You’re just not seeing the impact to (Kellogg’s) margins as much as you would in some of the other companies just due to the shift in the business model to the new warehouse distribution model from the prior direct store distribution model,” Weissman said.

Kellogg’s net income rose to $444 million in the first quarter of 2018 from $266 million a year earlier. Excluding one-time items, Kellogg earned $1.23 per share, handily beating the average estimate of $1.08.

Reporting by Nivedita Balu in Bengaluru; Editing by Sai Sachin Ravikumar and Saumyadeb Chakrabarty

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