"Net sales grew on a one-year and a two-year basis. In developed markets, it was aided by shipment timing and at home demand remaining elevated, partially offset by continued softness in away-from-home channels," said Kellogg's CFO Amit Banati on the company's Q1 2021 earnings call to investors this week.
For its 2021 full-year guidance, the company is expecting flat year-on-year growth compared to its previous guidance of roughly -1%, said Banati.
"This would equate to closer to 3% growth on our two-year compound annual growth rate, effectively eliminating the noise of lapping last year is COVID-related surge," he added.
Frozen foods growth: 'Morningstar Farms has increased its household penetration in the last year to a level that remains well above any of our competitors'
Due to some supply constraints and limited merchandising activity of some of its brands, Kellogg's had a slow start to the year in the US, noted Kellogg's president and CEO, Steven Cahillane on the call to investors.
"But this should improve in the second half as new capacity comes online," noted Cahillane.
Despite these constraints, Kellogg's grew net sales for its frozen foods business on a both a one-year and two-year basis.
"This predominantly North America business sustained momentum in both Eggo and especially Morningstar Farms," said Cahillane.
Consumption of Eggo frozen breakfast products accelerated nearly 17% in 2020 (+2% from 2019) leaving the company "very tight on capacity," notes Cahillane, who added that it will be freeing up capacity over the course of 2021.
"Eggo is in really good shape with more capacity coming on. With effective advertising and promising innovation on the way, this is a nearly $1bn retail sales brand with an outlook for sustained growth," he said.
Morningstar Farms, known for its plant-based breakfast meat products, is generating the strongest growth within its frozen foods business hitting over $400m in retail sales in 2020 with significant room to expand, according to Cahillane.
Incogmeato, Morningstar Farms' sub-brand, continues to expand retail distribution in refrigerated, frozen and food service, noted Cahillane.
"There is no question that consumers are becoming more aware and interested in plant based foods. Morningstar Farms has increased its household penetration in the last year to a level that remains well above any of our competitors. And yet is still only 8%, suggesting significant room to expand," he said.
Cereal performance update
Still dealing with temporary supply constraints for Frosted Flakes and Froot Loops brands, Kellogg's legacy cereal business registered slight growth (+0.5%) for Q1 2021 compared to Q1 2020, according to the company.
"Frosted Flakes and Froot Loops, two of the stronger brands in the category, accounted for all and more of our share decrease in the first quarter. Excluding them, our consumption kept pace with the category. So our underlying business remains in good shape," said Cahillane, adding that the company expects to be restore supply and capacity by mid-year.
Driving its cereal business forward, Kellogg's has introduced several new innovations including Mini-Wheats Cinnamon Rolls, Little Debbie Creme Pies cereal, Special K blueberries, and Keto-friendly Kashi Go offerings.
"We are very pleased with our innovation, which not only outpaced the category’s innovation in the first quarter, but is showing very strong velocities already," added Cahillane.