On Thursday, Kellogg’s (K, Financial), the consumer foods company well known for their line of ready-to-eat cereals (such as Special K, Frosted Flakes and Froot Loops, to name a few), presented at the Barclay’s Capital Back to School Conference. As a refresher on the company’s recent results, here are some of the highlights from the second quarter of 2011:
Net sales increased 11% in the quarter to $3.4 billion; internal net sales, which back out foreign currency translation, rose 6%.
Kellogg North America net sales were up 8% to$2.2 billion, driven by a 13% increase in North America Retail Cereal sales.
Kellogg International sales increased 16% (3% on a currency neutral basis) to$1.2 billion; by region, net sales were up 1% inEurope, 7% in Latin America, and 4% in Asia Pacific.
Reported earnings were up 19% to$343 million, or$0.94 per diluted share; on a currency-neutral basis, Q2 earnings were up 13%.
The company expanded its full-year 2011 internal net sales growth guidance to a range of 4-5%, while reaffirmed its full-year 2011 guidance of currency-neutral EPS growth of low-single digits. Assuming no foreign exchange impact, this implies EPS in the range of$3.33-$3.40; including the company’s estimate for foreign exchange benefit, EPS guidance is in the range of $3.42-$3.49.
As I noted in my article on Campbell’s, many CPG companies are looking to cut promotional sales that they piled into at the start of the economic crisis, but are facing a tough environment due to more price sensitive (elastic) demand. In 2010, for example, Kellogg’s said they had a “very difficult year” and “clearly lost their momentum,” as indicated by missing five out of six key internal metrics (such as growing internal net sales, growing gross profit dollars, improving price/mix, etc.) set to measure sustainable growth in the business.
As such, it will be interesting to see how companies like Kellogg’s, PepsiCo, and Campbell’s continue to make their way back to a more normal pricing environment without dropping share to private label competitors. Here are some of the important points that were made during the conference by CEO John Bryant, CFO Ron Dissinger, and CMO Mark Baynes:
In 2011, management believes they have met/exceeded expectations on five of their six key internal metrics, with the only miss coming on brand building (“we would like to see more growth in our brand building than we have in place in 2011”). For clarification, brand building is the advertising piece, which falls into SG&A; the promotional part of the business (“50% off,” for example) is part of the adjustment made above the line when calculating net sales from the gross figure.
A key to driving less elastic demand and building brand equity is innovation; CEO John Bryant had this to say about the company’s R&D program, and what impact it will have on the business: “This year we’ll launch products that will result in roughly $800 million in additional sales for the company… hopefully as we get to 2012 we will get back to our goal of having 15% of our sales from products launched in the last three years (12.3% and 13.5% in 2009 and 2010, respectively); we think innovation will be a key driver of our performance, and it is something that we’re very focused on.”
Another key driver of profitability is differentiation, often driven by brand building. Kellogg’s spends more than $1 billion (roughly 9% of sales) on advertising, about twice the food industry average. This is partly due to the dynamics of the cereal category, which makes up the majority of Kellogg’s sales. Here is how Mr. Bryant put it: “If you compare us against General Mills in cereal we spend right in line with our competition… cereal is one of the most advertising intensive categories out there. The good news of being so advertising intensive is that private label penetration is about half in our categories than what it is in the food industry average, which provides a very strong protective moat.”
Overall, the company spent the majority of the conference talking about brand building, innovation, and marketing. From the financial perspective, these developments will be key to reaching management’s goals, such as long term internal net sales growth of 3-4% and gross profit dollar growth at a rate in line or slightly faster than top line growth; it will be interesting to see what Kellogg’s pushes through the pipeline and onto store shelves over the coming years to build brand equity and drive returns for shareholders.
Net sales increased 11% in the quarter to $3.4 billion; internal net sales, which back out foreign currency translation, rose 6%.
Kellogg North America net sales were up 8% to$2.2 billion, driven by a 13% increase in North America Retail Cereal sales.
Kellogg International sales increased 16% (3% on a currency neutral basis) to$1.2 billion; by region, net sales were up 1% inEurope, 7% in Latin America, and 4% in Asia Pacific.
Reported earnings were up 19% to$343 million, or$0.94 per diluted share; on a currency-neutral basis, Q2 earnings were up 13%.
The company expanded its full-year 2011 internal net sales growth guidance to a range of 4-5%, while reaffirmed its full-year 2011 guidance of currency-neutral EPS growth of low-single digits. Assuming no foreign exchange impact, this implies EPS in the range of$3.33-$3.40; including the company’s estimate for foreign exchange benefit, EPS guidance is in the range of $3.42-$3.49.
As I noted in my article on Campbell’s, many CPG companies are looking to cut promotional sales that they piled into at the start of the economic crisis, but are facing a tough environment due to more price sensitive (elastic) demand. In 2010, for example, Kellogg’s said they had a “very difficult year” and “clearly lost their momentum,” as indicated by missing five out of six key internal metrics (such as growing internal net sales, growing gross profit dollars, improving price/mix, etc.) set to measure sustainable growth in the business.
As such, it will be interesting to see how companies like Kellogg’s, PepsiCo, and Campbell’s continue to make their way back to a more normal pricing environment without dropping share to private label competitors. Here are some of the important points that were made during the conference by CEO John Bryant, CFO Ron Dissinger, and CMO Mark Baynes:
In 2011, management believes they have met/exceeded expectations on five of their six key internal metrics, with the only miss coming on brand building (“we would like to see more growth in our brand building than we have in place in 2011”). For clarification, brand building is the advertising piece, which falls into SG&A; the promotional part of the business (“50% off,” for example) is part of the adjustment made above the line when calculating net sales from the gross figure.
A key to driving less elastic demand and building brand equity is innovation; CEO John Bryant had this to say about the company’s R&D program, and what impact it will have on the business: “This year we’ll launch products that will result in roughly $800 million in additional sales for the company… hopefully as we get to 2012 we will get back to our goal of having 15% of our sales from products launched in the last three years (12.3% and 13.5% in 2009 and 2010, respectively); we think innovation will be a key driver of our performance, and it is something that we’re very focused on.”
Another key driver of profitability is differentiation, often driven by brand building. Kellogg’s spends more than $1 billion (roughly 9% of sales) on advertising, about twice the food industry average. This is partly due to the dynamics of the cereal category, which makes up the majority of Kellogg’s sales. Here is how Mr. Bryant put it: “If you compare us against General Mills in cereal we spend right in line with our competition… cereal is one of the most advertising intensive categories out there. The good news of being so advertising intensive is that private label penetration is about half in our categories than what it is in the food industry average, which provides a very strong protective moat.”
Overall, the company spent the majority of the conference talking about brand building, innovation, and marketing. From the financial perspective, these developments will be key to reaching management’s goals, such as long term internal net sales growth of 3-4% and gross profit dollar growth at a rate in line or slightly faster than top line growth; it will be interesting to see what Kellogg’s pushes through the pipeline and onto store shelves over the coming years to build brand equity and drive returns for shareholders.
