A renewed focus on high-margin products such as the Nutri-Grain cereal bar helped US-based breakfast cereal group Kellogg to a strong rise in first quarter sales and profits.
Net profits were $163.9 million (€148.8m) up from $152.6 million in the previous year, while net sales were ahead 4.2 per cent to $2.15 billion, boosted by positive exchange rates but impacted by two small disposals during the last year. Operating profit increased by more than 6 per cent to $347 million, driven by sales growth and cost control.
"Our first quarter performance represents a strong start to the year, marked by solid top-line growth across our portfolio and earnings that were at the top end of our projected range," said Carlos Gutierrez, Kellogg's chairman and chief executive officer.
"To deliver this kind of performance, despite facing difficult sales growth comparisons and margin pressure from higher commodity, energy, and benefits costs, is a credit to the commitment and execution of our entire organisation."
Gutierrez said that excluding the impact of currency translations and divestitures, Kellogg's internal sales growth was a solid 3.4 per cent, which came against a strong year-earlier internal growth rate of 4.4 per cent.
Sales for Kellogg USA increased by 3 per cent, led by solid gains in the group's two largest businesses - cereals and snacks. US cereal sales were up 4 per cent, all the more encouraging as it compared to a particularly strong first quarter period in 2002, when sales rose by 9 per cent. The growth was driven by new products and strong consumer promotions, Gutierrez said.
Excluding the divestitures, the US snacks division recorded a gain of 4 per cent in net sales, again driven by new-product activity, particularly in wholesome snacks. The improvement was also a result of improved innovation and consumer promotion in the biscuit sector, he added.
All other US businesses posted flat net sales in the quarter.
Outside the US, Kellogg's international sales rose 12 per cent in dollar terms and 5 per cent in local currencies, with an increase of 3 per cent in Europe on the back of the new Volume to Value strategy - a focus on new products and favorable mix.
Kellogg's Latin American business grew by 13 per cent in local currencies, representing continued strong momentum in Mexico, Central America and the Caribbean. Collective growth was also posted by all other segments, led by Canada.
"We're encouraged by the broad-based nature of our sales growth," commented Gutierrez. "Adhering to our Volume to Value principle, each of our businesses is focused on adding value for the consumer instead of relying on price discounts. This principle - along with continuously improving execution - allowed us to continue to grow in the US cereal sector, resume growth in US snacks, and sustain momentum in our international markets."
He continued: "A key to sustainable growth is maintaining and improving the underlying profitability that allows us to reinvest in our brands. While we faced some unusually large cost increases in the first quarter, we made good progress in mitigating those pressures, and we kept overheads down. This will allow for continued brand-building investment in the future."
The company said that its first quarter results showed that it was on track to meet it full-year earnings per share target of $1.86-1.90. Low single-digit net sales growth is expected across the company's major operating units in 2003.