Kellogg’s Second-Quarter Results Beat Consensus

Kellogg (K) reported better-than-expected results for its fiscal second quarter and affirmed its sales growth guidance for the year amid gains in North American snacks, even as the company said higher input costs and taxes weighed on profitability.

Net sales rose 3% to $3.46 billion in the period ending June 29, topping the consensus on Capital IQ for $3.41 billion. Adjusted earnings decreased to $0.99 a share from $1.14 a share in the comparable period of 2018, but that was also ahead of expectations among analysts for $0.92 a share.

“We delivered another quarter of net sales growth, featuring more and better innovation, momentum on revitalized snacks brands, better price realization, and continued expansion in emerging markets,” said Steve Cahillane, the company’s chief executive.

Still, profitability in the quarter came under pressure from charges to restructure operations in Europe and realigning its North America business after the sale of its some of its cookies, fruit snacks, pie crusts and ice cream cones units in a deal with the Ferrero Group that closed earlier this week.

The adjusted effective tax rate for the company rose to 20.5% in the quarter from 15.1% a year earlier while cost of goods sold increased to $2.28 billion from $2.15 billion previously.

Net sales in North America snacks rose 3.6% with brands including Pringles and Rice Krispies aiding the momentum. Frozen foods was up 3.1%, but cereal retreated 4.8% versus the second quarter of 2018 “on reduced promotional activity amidst the second and final wave of pack-size harmonization,” Kellogg said.

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