BATTLE CREEK, MICH. – The Kellogg Co. delivered strong top- and bottom-line results during the second quarter of fiscal 2021. Momentum from last year’s elevated levels of at-home consumption and double-digit growth in emerging markets fueled the company’s performance.
But management warned uncertainty related to how COVID-19 may affect markets around the world, supply chain disruptions related to labor and logistics, and manufacturing capacity constraints may be a drag on future performance.
Net income for the quarter ended July 3 was $380 million, equal to $1.12 per share on the common stock, and an increase over the year prior when earnings were $351 million, equal to $1.02 per share.
Sales for the quarter rose to $3.55 billion from $3.47 billion.
“Overall, at-home demand remained elevated, and we saw continued recovery in our away-from-home channels,” said Steven A. Cahillane, chairman, president and chief executive officer, during an Aug. 5 conference call with securities analysts. “Most encouraging has been the momentum demonstrated by key long-term growth engines for us.”
Volume declined when compared to last year’s double-digit pandemic-related surge but was up compared to the same period in fiscal 2019, said Amit Banati, chief financial officer.
The company’s North American snacks business, which includes Pringles, Cheez-It, Pop-Tarts and others continued to grow on a one-year and two-year compound annual growth rate (CAGR).
“US consumption remains solid on a two-year CAGR basis outpacing all three of our snacks categories and led by power brands,” Mr. Cahillane said.
North American cereal sales were off slightly during the quarter due to declines in away-from-home channels and capacity constraints.
“Frosted Flakes accounted for most of the share decline related to pulling back on brand building and merchandising since Q4 last year, as we worked to maintain service levels and add capacity planned prior to the pandemic,” Mr. Cahillane said. “Unfortunately, our capacity expansion has been slowed by current supply shortages and by our recent fire in one of our facilities. This will delay our return to normal commercial activity on affected brands.”
Kellogg’s two frozen foods businesses — breakfast and plant-based foods — also continued to grow on a two-year CAGR basis despite capacity limitations. Mr. Cahillane said it was the MorningStar Farms business that was facing capacity issues.
Mr. Banati said labor shortages, particularly in distribution and logistics, has been a key challenge for the company.
“We’ve seen the spot market in the freight significantly up due to a shortage of drivers,” he said. “It’s impacting our operation in our factories in terms of just labor and it’s impacting the entire supply chain. So, we are seeing it in our suppliers as well. So, it is broad-based.”
Despite the challenges, management raised Kellogg’s fiscal 2021 sales guidance from flat to flat to 1% and reaffirmed earnings per share to be in a range of 1% to 2% over fiscal 2020.
“We have completed another quarter of strong execution and performance, capping a first half that featured the following: Underlying business momentum, driven by our biggest brands; unlocking capacity so we can resume full commercial activity in certain products; sustained growth momentum in emerging markets; leveraging enhanced capabilities from data and analytics to innovation to ESG,” Mr. Cahillane said.
For the first six months of fiscal 2021, net income totaled $748 million, equal to $2.19 per share, an increase over the year prior when earnings were $698 million, equal to $2.02 per share.
Sales for the first half were $7.14 billion, up from $6.88 billion fiscal 2020.