Kellogg is reaping in the benefits of its move into healthier eating, with the cereal maker crediting strong growth in sales of good-for-you products for its better than expected first quarter performance.
The company behind Special K and Frosted Flakes reported a 4.7 per cent rise in sales to $3.4bn in the three months to end of March, topping Wall Street’s forecast for $3.3bn.
Shares were up nearly 3 per cent in early trade on Thursday to $58.
The sales gain came despite another quarter of decline in cereal sales in its all-important US market. The US morning foods division, which houses Kellogg’s cereal brands and was once the company’s largest in terms of revenue, saw sales fall 2.4 per cent to $691m from the same period a year ago. Organic sales at the unit dropped by a similar margin.
“Cereal consumption remained soft, though the Company made progress toward stabilising the key health and wellness brands, including Special K,” Kellogg said in a statement.
In a stunning admission earlier this year, Kellogg conceded that it can no longer hitch its future on the sales of its once iconic, albeit sugar-loaded cereal brands, which include Corn Flakes and Fruit Loops.
In an effort to reduce its reliance on US cereal sales, the company has been diversifying its product portfolio into healthier offerings. It snapped up protein bar maker RXBar for $600m last October. It has also stepped up its push into faster growing emerging markets with a deal to buy a controlling stake in privately held Brazilian food group Parati for about $429m in 2016.
The gambit appears to be paying off.
Its North American Other unit, which operates brands such as Kashi Organic and RXBar, reported a 22 per cent jump in sales to $479m. That along with strong showings by Kellogg overseas helped the company offset the continued slide in its North American snack and cereal businesses.
Net income came in at $444m for the quarter, ahead of the $374m the market was expecting and up from the $266m reported in the year ago period, as cost cutting helped boost margins and its bottom line.
Looking ahead, Kellogg said it is now expects to deliver full year sales growth of 3-4 per cent on a currency-neutral basis following further investments in West African businesses. It had previously projected flat sales growth for the year.
Despite Thursday’s share price gain, the stock remains down some 14.6 per cent for the year.