The lockdown that has devastated the economy has benefited the breakfast cereal giant as households have more time to eat at home.
The company said the pandemic drove elevated at-home demand during the second quarter, particularly for its breakfast cereal and frozen foods products in developed markets. As such, it has had to increase production to keep up with demand and rebuild inventory, resulting in operating leverage that more than offset incremental costs, resulting in higher profit margins.
Kellogg reported a 9.2% jump in organic net sales to $3.6bn for the three months ended June 27, 2020. Net sales for the quarter were roughly flat at $3.47bn compared with the same period last year – pulled down by the July 2019 divestiture of its cookies, fruit snacks, pie crusts, and ice cream cones businesses – but surpassed the consensus estimate of $3.3bn.
Earnings were $351m, or $1.02 a share, up from $286m, or 84 cents a share, the year earlier. The company’s adjusted profit, accounting for currency fluctuations, rose 24.2% to $562m from $452 for the same period a year earlier.
The company also raised its full-year financial guidance, projecting 5% year on year organic sales growth, compared to a previous target of 1-2% growth.
Supplying much-needed food to the marketplace
“Our first half performance puts us in the position to substantially increase our investment in the business during the second half, while still delivering more net sales, operating profit, earnings per share, and cash flow for the full year than we had originally planned,” said Steve Cahillane, Kellogg chairman and CEO.
“I want to acknowledge and thank our colleagues around the world for their exceptional work, agility and open dialogue during what have been truly unprecedented circumstances. Our organisation has risen to the challenges of keeping each other safe, supplying much-needed food to the marketplace, and giving back to our communities in a time of need. Importantly, we improved our category share performance and delivered financial results that exceeded our expectations.”
With signs that many businesses will continue to allow employees to work from home, Kellogg’s bottom line will obviously continue to benefit.