Kellogg blames lackluster Q1 results on ‘continued weakness’ in Europe and high input costs

By Elaine Watson

- Last updated on GMT

Related tags: Revenue, North america

Kellogg blames lackluster Q1 results on ‘continued weakness’ in Europe and high input costs
Kellogg blamed disappointing results in Europe and in some categories in the US, high commodity inflation, and ill-judged supply-chain initiatives for a 6.5% drop in first quarter operating profit.

The firm, which recently boosted its snacks business with the $2.7bn acquisition of Pringles, posted a 1.3% drop in sales to $3.4bn in Q1, 2012 and a 6.5% drop in operating profit to $535m. Net earnings were flat at around $358m.

Chief executive John Bryant said: "Despite the difficult environment we faced in the first quarter, we remain committed to investment and optimistic about the strength of our brands and the categories in which we compete.

"The acquisition of the Pringles business will bring significant opportunity."

Net sales at Kellogg North America rose 1.5%, while internal net sales in Europe dipped 10.4%.

‘The more rocks that are turned over, there’s more ugly stuff underneath’

Bryant faced a grilling from analysts on a recent earnings call, with Deutsche Bank analyst Eric R. Katzman observing that “it seems like the more rocks that are turned over, there's more ugly stuff underneath…”

Bryant agreed mistakes had been made in the US implementation of its K LEAN cost-cutting initiative - “we did cut too many people from our facilities… andwe probably worked the assets a bit too hard​” – but said he remained confident about the firm’s prospects in the US cold cereals sector.

Asked about the performance of the Kashi cereal brand, he said: “I think we need to pick up the rate of innovation on the Kashi business. And we're driving very strong plans for 2012.

Pringles acquisition

The Pringles acquisition - expected to close in late June - will add $500m to Kellogg's North American snacks sales and almost triple the size of its international snacks business, said Bryant.

He added: "After this deal, our snacks and cereals business will be of a similar size."

 

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