Kellogg’s $30m cereal recall: Consumer pains but no financial pinch

By Kacey Culliney

- Last updated on GMT

Related tags: Cereal, Kellogg company

Kellogg's may feel consumer losses in the short-term, an analyst says
Kellogg's may feel consumer losses in the short-term, an analyst says
Kellogg’s recent recall of two cereal products following a metal mesh contamination scare will cost the firm between $20-30m and will hit consumer trust in the short-term, an analyst says.

The cereal giant issued a voluntary recall of its Frosted Mini-Wheats Bite Size Original and Mini-Wheats Unfrosted Bite Size and was prompted by “the possible presence of fragments of flexible metal mesh from a faulty manufacturing part”. ​It pulled an estimated 282,000 packages off the shelves.

“This recall will obviously hurt consumer trust in the short-term. Since the two recalled cereals are aimed at kids, it will largely affect mothers’ purchasing behavior, some of whom may stop buying the product for a couple of months or longer,”​ Matthew Hudak, research analyst at Euromonitor International, told BakeryandSnacks.com.

“Some of those consumers may switch to cereal brands from rival General Mills or to private label alternatives to save money,”​ Hudak said.

However, this recall only affects a single brand and compared to its 2010 recall of 28 million boxes across various brands, it is “somewhat less substantial”,​ he added.

“Additionally, since no injuries or deaths resulted from the metal fragments in the cereals, consumers are likely to forgive Kellogg Company sooner than later and return to purchasing Kellogg cereals after a few months have passed,” ​he said.

No financial pains

While the recall may hurt consumer trust in the short-term, the cereal giant was quick to dismiss any financial pains. In a trading update posted on Wednesday it said that while costs would be recognized in the third quarter, there would be no impact on final year earnings. It reaffirmed its full-year 2012 guidance of between 3.18 and 3.30 per share.

“During the third quarter of 2012, good performance from the Pringles business and changes in the estimates for certain non-operating items allowed the company to offset substantially all of the costs related to the recent, limited recall of certain packages of Mini-Wheats cereal,”​ Kellogg’s said.

The firm sealed its $2.7bn acquisition of Pringles on June 1 following EU Commission clearance in May 2012.

Ratings agency Standard & Poor’s (S&P) estimated at the time that the purchase would nearly triple Kellogg’s snacks sales and drive broader international sales.

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