CHICAGO – Kellogg Co. (K), the world's largest cereal maker, Monday said quarterly earnings rose 16 percent, beating forecasts, as lower finance costs and sales of higher-margin products such as wholesome snacks offset weakness in its cookie business.
Investors, who had recently bid Kellogg's shares to three-month lows, had worried over increased competition in the cereal business and the rising cost of commodities, which have pressured rivals such as Kraft Foods Inc. to lower their full-year profit forecasts.
But Kellogg, which has progressively moved away from discounting toward higher-margin products such as Nutri-Grain (search) cereal bars and other convenience foods, said it would stick with its full-year profit forecast.
Quarterly sales rose 6 percent to $2.4 billion. Internal net sales, which exclude the impact of foreign exchange, rose 5 percent.
"These guys appear to continue to get it done," said Lehman Brothers analyst Andrew Lazar, who rates Kellogg "neutral." "You can point to the sales growth. There is still upward momentum."
Kellogg, the maker of Eggo frozen waffles and Nutri-Grain cereal bars, said it earned $237.4 million, or 57 cents a share, in the second quarter ended June 26, compared with $203.9 million, or 50 cents a share, a year earlier.
Analysts had expected earnings on average of 57 cents a share, according to Reuters Research.
Lazar and other analysts stressed the "high quality" of Kellogg's results, noting that the company chose to absorb what it anticipates will be higher costs for restructuring into its earnings forecast rather than inflate its projections.
"It was another very good quarter," said Morgan Stanley analyst David Adelman. "The results beat our expectations."
Kellogg's full-year forecast for restructuring moves designed to boost manufacturing capacity is now 14 cents to 16 cents a share, 4 cents a share higher than its most recent forecast range.
Second-quarter North American sales rose 5 percent, with retail cereal sales up 2 percent in local currencies, and retail snacks up 7 percent.
Kellogg's international division reported net sales growth of 9 percent, or 5 percent in local currencies, with strong results in Latin America offsetting some weakness in Australia and Korea.
Battle Creek, Mich.-based Kellogg backed its full-year profit forecast for earnings of $2.07 to $2.11 a share, up 8 percent to 10 percent from last year. In the most recent quarter, Kellogg spent 3 cents a share on restructuring to reduce its costs.
"It is particularly gratifying that we were able to achieve this excellent performance while absorbing increased commodity and benefit costs," Kellogg Chairman and Chief Executive Officer Carlos Gutierrez (search) said in a statement.
Kellogg shares gained 11 cents to $40.34 on the New York Stock Exchange (search).
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