BATTLE CREEK, MICH. — Fueled principally by strong results in non-US markets, Kellogg Co. enjoyed solid growth in first-quarter sales and earnings and raised its guidance for the 2021 fiscal year.
Net income at Kellogg in the first quarter was $368 million, equal to $1.07 per share on the common stock, up 6% from $347 million, or $1.01 per share, in the first quarter of fiscal 2020. Net sales were $3.58 billion, up 5% from $3.41 billion the year before.
“Amidst continued difficult circumstances, our organization executed exceptionally well in the first quarter and delivered very good results, both financially and in-market,” said Steven A. Cahillane, chairman and chief executive officer. “The quarter featured continued momentum in major brands and categories, accelerated growth in emerging markets, and effective management of cost pressures through productivity and revenue growth management. This strong start to the year enables us to raise our full-year financial outlook, and underscores confidence in our ability to sustain balanced financial delivery.”
The results elicited a strong response on Wall Street. In trading on the New York Stock Exchange May 6 after the results were announced, shares of Kellogg closed at $67.53, up $4.46, or 7%, and reached an intra-day high of $68.50.
With the first quarter under its belt, Kellogg is projecting flat net sales for the full year, an improvement from a decline of 1% the company had been forecasting. Operating profit is expected to fall 1% to 2% in 2021, versus previous guidance of a 2% drop for the year. Adjusted earnings per share for the year are expected to rise 1% to 2%, an improvement from earlier guidance of 1%. With the adjustments, Kellogg said its 2-year compound annual growth rate would be 3% for sales, 4% for operating profit and 5% for earnings per share, excluding the effects of divested businesses.
In North America, first-quarter operating profit was $379 million, up 3.6% from $366 million in the first quarter last year. Sales were $2.13 billion, up 1.6% from $2.1 billion. The higher operating profits were attributed to higher net sales, which the company said elevated its operating leverage. By product line, snack sales were up 3.8%, cereal was down 1.9%, and frozen foods were up 0.6%.
Supply constraints were to blame for the sluggish sales of ready-to-eat cereal in the first quarter, Mr. Cahillane said.
“We will be caught up on supply and capacity around midyear, as we’ve mentioned previously,” he said. “But in the first quarter, those supply-constrained brands, Frosted Flakes and Froot Loops, two of the stronger brands in the category, accounted for all and more of our share decrease. Excluding them, our consumption kept pace with the category. So our underlying business remains in good shape.”
In fact, he described robust innovation in the first quarter with new products “showing very strong velocities already.” New products he cited included Mini-Wheats Cinnamon Roll, Little Debbie Oatmeal Creme Pie, Special K Blueberries and keto-friendly Kashi Go.
A successful brand for many years, Cheez-It sales remained strong in the first quarter, Mr. Cahillane said. He said Kellogg is now seeking to translate this strength into international markets.
Its US consumption and share growth has been exceptional over the last several years, and it has continued in the first quarter,” he said. “The base product line continues to perform well, helped by effective advertising and sports-related activations as well as new flavors and a reformulation of the Grooves sub line. Meanwhile, the Snap’d sub line is providing incremental growth enough that we had to add capacity in 2020 in only its second year since launch."
He said Cheez-It was introduced in Canada in 2020 and enjoyed rapid growth there in the first quarter of 2021. This year, Cheez-It was launched in Brazil. It has grown into a $1 billion global brand.
North America accounted for 59% of Kellogg overall sales in the first quarter and 80% of the company’s operating profits, but both sales and operating profits grew more quickly in Kellogg’s other regions in the first quarter. Sales were up 10% in Europe, 4.2% in Latin America and 14% in Asia Pacific, the Middle East and Africa (AMEA). US volume was down 1.9% during the first quarter, versus a 0.2% increase in Europe, 4.6% in Latin America and down 1.7% in AMEA. Pricing and mix contributed 3% to sales growth in North America, 2.7% in Europe, 5.5% in Latin America and 16.2% in AMEA.
Mr. Cahillane attributed strength in AMEA to a surge in sales in west Africa, where the company benefited from a 20% jump in sales by the company’s Multipro distributor business. Its sales were up more than 20% from the first quarter of 2020, when the company also achieved strong double-digit growth. Additionally, sales of Pringles, ready-to-eat cereal and noodles were strong across the entire AMEA region.
Mr. Cahillane struck a hopeful tone discussing prospects for Incogmeato, the company’s new line of plant-based meat analogs. He called the product “great food” with “a lot of promise.” He emphasized the foundation of strength Kellogg has in the plant-based food space.
“Simply put, MorningStar Farms is the largest brand with the highest penetration, the broadest portfolio and the most occasions in this plant-based category,” he said. “So we are realizing good underlying momentum across our major category groups and led by world-class brands.”
Asked about whether Kellogg would be able to pass along cost increases through higher prices, Mr. Cahillane said such pricing action is not a given in the marketplace.
“We have to earn that price in the marketplace, through investing in our brands, through innovating, through putting the types of performances that we've been able to put against our brands, which puts us in a good position to have the confidence to slightly raise our guidance even despite increased cost pressures that are quite real,” he said.
Amit Banati, chief financial officer, said the company expects input inflation “in the high end of the mid-single digits.
“We’re seeing it across our cost basket from exchange-traded commodities to diesel and energy, ocean freight,” he said. “We've seen a
spike in ocean freight as well. I think all of that has been incorporated into the guidance that we provided today. From a hedging perspective, we’re about 76% hedged on the exchange-traded commodities.”