Kellogg’s pricing actions help bolster annual forecasts

FILE PHOTO: Kellogg's cold cereal products are pictured in a market in New York

By Aatrayee Chatterjee

(Reuters) -Kellogg Co on Thursday forecast a smaller drop in annual profit than it had previously expected and raised the lower end of its sales outlook on the back of repeated price hikes and resilient demand for its cereals and snacks.

Kellogg, like other global packaged food makers, has been using its brand power to steadily raise product prices over the past year to counter spiraling costs of ingredients amid a cost-of-living crisis.

The Pringles maker’s strong outlook follows upbeat comments from peers PepsiCo Inc and Hershey Co, which also lifted their annual forecasts in recent months boosted by price increases.

Kellogg saw its organic volumes fall by 1.9% in the first quarter, compared to a 0.6% rise in the fourth quarter.

J.P.Morgan analyst Ken Goldman wrote in a note that the fall in volumes was expected given the 15.6% rise in pricing, but it comes off as “disappointing” at a time when investors are more sensitive to volume numbers.

Shares of the Michigan-based company were down about 3% in early trading.

RBC Capital Markets analyst Nik Modi said, “Given the mounting pressures on consumers, we expect private label and promotional pressure to increase, which will likely limit upside to Kellogg’s EPS in 2023.”

Higher product prices are expected to cause concerns for global packaged food companies as consumers are likely to look for cheaper items and trade down to private label products.

Edward Jones analyst Brittany Quatrochi said pricing should be a less of factor driving Kellogg’s sales, like its packaged food industry peers, as the year progresses.

Kellogg expects its full-year adjusted profit per share to fall between 1% and 3%, compared with the prior forecast for a decline of 2% to 4%.

It sees organic net sales growth between 6% and 7% in 2023, against its earlier forecast for 5% to 7% growth.

(Reporting by Aatrayee Chatterjee in Bengaluru; Editing by Milla Nissi)