Kellogg’s Says Snack Segment Is Driving Sales, Affirms Full Year Outlook

Snack sales, emerging market growth and positive price realization helped Kellogg’s overcome cereal inventory issues to score a 4% increase in organic net sales during Q1 2022.

According to Kellogg Chairman and CEO Steve Cahillane, the company is planning a “sequential” rebuild to restore its momentum in its flagship category, which has grappled with stock challenges after facing both a labor strike and a fire at its Lancaster, Pennsylvania manufacturing facility last year. He characterized Kellogg’s cereal business as “in recovery mode,” but said it expects to fully restore the segment by the second half of the year.

As cereal manufacturing gets recalibrated, Kellogg’s snacking segment is helping balance the business, said Cahillane. Conventional brands were leading the charge including Pringles (+8%), Cheez Its (+14%), Pop Tarts (+11%) and Rice Crispies (+10%), all seeing positive sales increases in the U.S. this quarter.

“The strength of our portfolio is evident, as we more than offset the sales and cost impact of supply recovery in North America cereal with sustained momentum in snacks growth around the world,” Cahillane said in a press release. “Our ability to execute with agility was also on display, as we navigated through a challenging supply environment and delivered productivity and price realization amidst decades-high cost inflation.”

Cahillane noted Kellogg’s has been able to mitigate both the impact of supply chain disruptions and the war in Ukraine on its business, crediting the positive price realization that took effect this quarter.

Outside of the U.S., Pringle’s in has emerged as a leader among the company’s three emerging markets – which includes Asia and AMEA (Asia Pacific, Middle East and Africa) – while also growing in Europe during the quarter. Cahillane attributed the brand’s significant gains to its ability to break beyond the market’s “magic price points” with targeted messaging and “incremental innovation.”

“It was just an excellent quarter driven by very good top line performance that flowed through to the bottom line,” explained Cahillane during a call with investors. “This is four years now where our European business has been performing well and… there’s not too many businesses like ours that talk about Europe as a growth driver to their company.”

In addition to its challenges in cereal, sales of Kellogg’s plant-based subbrand Morningstar Farms also declined this quarter. Cahillane cited increased competition in the category, particularly among similarly priced products, as the source of this deceleration. The brand “paused” on distribution gains and household penetration this quarter as consumption declined almost 11% on a two-year stacked basis.

Despite the “unprecedented cost and supply challenges,” and continued inflationary pressures, Cahillane credits Kellogg’s reshaped portfolio and growth strategy for enabling it to raise organic net sales guidance to 4% and affirm its operating profit margins, EPS and cash flow projections.

“Our strong start to the year, coupled with good sales momentum, allow us to affirm earnings guidance even as the outlook has worsened for cost inflation and incremental business disruptions, including impacts related to the war in Ukraine. This is a testament to our strategy, our portfolio, and our people.”