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Kellogg records modest growth driven by Latin America and Asia-Pacific

By Oliver Nieburg , 03-Feb-2012

Cereal and snacks giant Kellogg has announced growth in its fourth quarter (Q4) full-year results led by gains in Latin America and Asia-Pacific.

In Q4, the company was able to claw back some of profit it had lost as a result of increased investment in supply chain initiatives in Q3.

Kellogg president and CEO John Bryant called performance in Q4 “a strong finish to a difficult year”.

Results summary

For the quarter, net sales were up 5.4% on last year to $3bn.

Operating profit for Q4 was $397m up 20.3% on the same period last year.

For the full-year, this led to a 6.5% increase in net sales to $13.2bn, compared to 2010 figures.

Operating profit for the year however was stagnant at $2bn, largely due to the company’s supply chain initiatives.

International markets drive growth

Operating profit in North America remained unchanged in 2011, though the company saw some improvement in Q4.

International sales and profit proved more fruitful in 2011, with Latin America and Asia-Pacific the highlight.

Latin America internal sales growth was up 15.1% for the year, driven by sales in Mexico and new product launches, such as Krave and Special K. However, Q4 performance in the region proved less rewarding.

Bryant called Latin America a “volatile economic environment”, but expected growth in the region for 2012.

Asia-Pacific growth was also strong. Minus the impact of an impairment charge on Kellogg’s Chinese business, operating profit was up around 50%.

“In Australia, we gained cereal category share in the fourth quarter and the customer issue we referenced last quarter has been resolved,” said Bryant.

He added that Kellogg had experienced strong growth in India, South Africa and Korea.

“We expect continued strong growth from this region in 2012,” he said.

European sales were hit by a tough operating environment in the UK and the company reduced its investment in brand building as a result. Bryant said 2012 would be another difficult year in Europe.

Supply chain optimisation

In the third quarter, Kellogg increased the scope of its supply chain investment, which negatively impacted sales.

Company CFO Ronald Dissinger said:”These investments were primarily made across our U.S. network and included cost to add people back into our plants, increased logistics costs and reduced operating leverage caused by some production lines being down for refurbishment.”

CEO John Bryant added that the company would continue to invest in improving its supply chain in 2012, making it another “transition year”.

Brand transitions

Kellogg said that it had moved a series of brands in to new markets, which had proved successful.

It introduced Mini-Max cereal in the UK and launched Krave cereal in the US and Mexico following strong brand performance in Europe.

Bryant said the company was looking to capitalise on the trend for gluten-free with introduction of gluten-free Rice Krispies, but added that the cereal category would be tougher in 2012.

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