October 29, 2019 / 12:16 PM / 21 days ago

Kellogg profit gets boost from snacks, frozen foods

(Reuters) - Kellogg Co’s (K.N) quarterly revenue and profit beat Wall Street expectations on Tuesday, as demand for its Pringles and Cheez-It snacks, as well as frozen foods cushioned the impact of sluggish sales for its cereals in North America.

FILE PHOTO: Kellogg's corn flakes products are seen at an outlet of retailer Woolworths in Sandton, South Africa, August 28, 2019. REUTERS/Siphiwe Sibeko

Shares of the company, which reaffirmed its full-year sales forecast, climbed 4% to $63.61.

The company has been stepping up efforts to attract health-conscious consumers with plant-based and probiotic products as they shun sugary cereals that used to be a staple in American breakfast tables.

It has been also spending more on promotions, packaging to make products easier for on-the-go consumption, and adding items under its MorningStar Farms brand that makes plant-based meat alternatives, which have seen booming demand recently.

The efforts boosted organic net sales for snacks in North America, its largest market, to rise 5.2% in the third quarter.

Organic sales from North America frozen foods segment rose 0.6%, with double-digit jump in demand for MorningStar Farms brand.

The company plans to launch new brand Incogmeato, which includes ready-to-cook plant-based burger, at grocery stores in early 2020.

“So much has been made lately of the emerging ready-to-cook or refrigerated meat alternatives segment and there is no question that this segment has terrific momentum and growth prospect,” Chief Executive Officer Steve Cahillane told analysts on the earnings call.

However, cereals declined in North America in the quarter despite the company’s move to standardize pack sizes and launch products such as new Happy Inside and Pop-Tarts cereals.

“Cereal in the United States is job No.1,” Cahillane said.

“We are not where we need to be yet in North America cereal but we are on it,” Cahillane said, adding that he expects gradual improvement in the segment in the fourth quarter and into 2020.

Overall organic sales, which excludes acquisitions, divestitures and foreign exchange impact, rose 2.4% for the three months ended Sept. 28.

Net sales dropped 2.8% to $3.37 billion, but beat the average analyst estimate of $3.35 billion, according to IBES data from Refinitiv.

Excluding items, Kellogg earned $1.03 per share and beat expectations of 91 cents.

The company now expects full-year adjusted profit in the low-end of its prior guidance of 10% to 11% fall, partly due to the divestiture of its Keebler biscuits brand and other assets.

(The story corrects adjusted EPS to $1.03 from $1.05 in second-last paragraph.)

Reporting by Praveen Paramasivam and Soundarya J in Bengaluru; Editing by Arun Koyyur and Shinjini Ganguli

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