Kellogg: Saw Strong Growth in Q1, but Needs to Enhance Weaker Business Units

03 Jun 2010 • by Natalie Aster

The food manufacturer has announced a rise in operating profits for the first quarter of 2010.

Kellogg has announced an increase in profits of 30% for the first quarter of 2010, with the company's snacking division and international operations having fared especially well. However, US sales generally and frozen food sales in particular have been less successful, and the company will need to address such shortcomings to maintain growth in a difficult climate throughout 2010.

Kellogg has announced an impressive 30% rise in its first quarter profits, which reached $418m. The company also saw its revenues rise by 4.7% globally, although volumes remained flat. With Kellogg staying cautious, the broader target for 2010 was reiterated as 2-3% revenue growth for the year.

The strong figures posted by Kellogg owed much to sales from outside its US homeland. While domestic sales grew by 3%, international sales climbed by a more impressive 9% as the company successfully promoted its business in key emerging markets. In the US, Kellogg has been hit by increased competition in the cereal market from Post Cereals and Quaker in particular, resulting in just 0.5% sales growth for the quarter for Kellogg.

Kellogg fared particularly well in the snack market, with brands such as Apple Jacks and Keebler Club Crackers driving sales growth of 5% in this category in North America. The recession has seen many consumers seeking affordable indulgences to escape the pressures of everyday life, making the snack market appealing to the right brands.

In contrast, Kellogg's frozen food operations suffered a fall of 3% in revenue, with much of this decline attributed to the shortage of the company's Eggo waffles. This was caused by flood damage at one manufacturing site coupled with equipment repairs at another. Frozen food is still in demand, with many consumers stocking up in anticipation of higher prices in the near future. Kellogg is planning an advertising campaign for Eggo for the second half of 2010, and this will be important in reviving the brand.

Kellogg's first quarter results provide some encouragement to the firm, particularly with the large growth in profits. However, the rest of the year is likely to see ingredient costs rise, and the company will need to ensure that all divisions are performing well. It will be important for Kellogg to revitalize the fortunes of the frozen food section in particular in order for it to meet its targets for 2010 and enter 2011 in a strong position.

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