BATTLE CREEK, MICH. — While not the eye-popping numbers recorded earlier in the year, The Kellogg Co. continued to enjoy strong growth in the third quarter, said Steven A. Cahillane, chairman and chief executive officer. During the quarter, the company gained share in most of its primary US categories.
Kellogg net income in the quarter ended Sept. 26 was $348 million, equal to $1.02 per share on the common stock, up 41% from $247 million, or 73¢ per share, in the third quarter last year. Net sales were $3.43 billion, up 1.8% from $3.37 billion in July-September 2019.
“I’m proud of the way our organization has come together to manage through these trying times,” Mr. Cahillane said. “We’re taking the extra steps to keep each other safe, supply the market with our foods, and support our communities in a time of need. Amidst an uncertain business environment, our strong planning and execution drove better-than-expected financial results and solid in-market performance across all four of our regions in the third quarter. Accordingly, we are raising our full-year outlook for all key financial guidance metrics, even as we increase investment for the future.”
Kellogg now is forecasting net sales growth of 6% in 2020, up from a 5% projection after the second quarter and 1% to 2% after the first quarter. Operating profits for the year are expected to rise 2%, versus guidance of a decline of 1% a quarter ago and a 4% decline after the first quarter.
Operating profit of the North America division of Kellogg was $321 million, up 54% from $208 million in the third quarter last year. Sales were $6.3 billion, down from $6.5 billion.
The profit increase was credited to a lack of a one-time charge. On a currency-neutral adjusted basis, operating profit fell 9% because of higher advertising and consumer promotion spending as well as incremental COVID-related expenses and the absence of results from businesses divested in July 2019. Sales were flat because of the divested business (Keebler and other brands in the third quarter of 2019), offset by strong growth in remaining businesses.
“On an organic basis, net sales grew approximately 3% with growth in cereal, snacks, and frozen foods,” Kellogg said. “In the US, Kellogg gained share in five of its six primary categories.”
In an Oct. 29 conference call with investment analysts, Mr. Cahillane said sales growth was held back by double-digit declines in away-from-home sales, which was anticipated. North American business otherwise enjoyed solid mid-single-digit growth performance.
“And while our deceleration from the quarter 2 surge was inevitable, we're very pleased with how we performed within our primary categories,” he said. “The company’s plants have continued running well, focused on maximizing throughput and running up against capacity constraints in certain categories.”
Even if the pace was not as great as during the second quarter, the Kellogg North American snacks business was growing solidly, Mr. Cahillane said.
“Pringles continued to post double-digit consumption growth, holding share despite continued softness in on-the-go pack formats as expected,” he said. “In crackers, we continue to outpace the category's solid mid-single-digit growth in the quarter. Cheez-It Snap'd continues to grow strongly in its second year, supported by recently-added capacity, while accompaniment-oriented cracker brands, Club, Town House and Carr's have collectively gained share as well. In portable wholesome snacks, the category remains pressured by reduced on-the-go occasions during the pandemic. And while this has impacted on-the-go brands in our portfolio like RX and Kashi, we've been able to gain share on the strength of our growing Pop-Tarts and Rice Krispies Treats brands. So our snacks brands business is in great shape.”
Mr. Cahillane said Kellogg gained market share in ready-to-eat cereal, with sales boosted by renewed advertising support and updated messaging for Special K and Mini-Wheats together with new products such as Jumbo Snax and MASHUPS. The latter products helped Kellogg lead the category in innovation.
“We have added more household penetration during the pandemic, and we've held on to more of it than the category,” he said.
In frozen foods, growth did not decelerate as much as either cereal or snacks in the third quarter, and growth held at high single digits, Mr. Cahillane said. Growth perhaps would have been greater but for capacity constraints. Declines in away-from-home channels and the phasing out of certain noncore product lines.
“Eggo brand grew consumption by almost 13% in the quarter, with strong growth in waffles, French toast and pancakes and continuing to gain share,” he said. “Our Morningstar Farms brand grew consumption by nearly 18%, trailing the frozen veg/vegan category's exceptional growth as we ran up against our capacity.”
After a brief delay, the Kellogg Morningstar Farms meat alternative sub-brand Incogmeato was introduced during the quarter. While he said it is too early to gauge market reception, Mr. Cahillane said Kellogg has launched burgers, sausage bratwurst and ground beef in the refrigerated aisle. In the frozen aisle, Kellogg has launched Disney-shaped chicken nuggets, marking the first kid-oriented offering in this plant-based category, he said.
“We are expecting a gradual distribution build, and we're confident about our food, branding and breadth of offerings,” Mr. Cahillane said. “So like our other North American businesses, frozen foods is performing very well.”
Year-to-date net income at Kellogg was $1.05 billion, or $3.05 per share, up 29% from $815 million, or $2.39. Net sales were $10.31 billion, down from $10.36 billion.kell