NEW YORK (AP) — Escalating commodity costs and ongoing weakness in Europe drove Kellogg's second-quarter net income down 12 percent Thursday. But adjusted results topped Wall Street's view and the food maker's one-two punch of breakfast goods and snacks gave a lift to revenue, driven by sales of Pop-Tarts and strength in North America.
Kellogg Co. has long been known to consumers for its morning wake-up foods like Frosted Flakes cereal and Eggo waffles. But the company is aggressively building its snacks business as well, with hopes that its recent $2.7 billion acquisition of Pringles from Procter & Gamble Co. will make it a global player in that market. The snacks division already includes Cheez-It, Keebler's Club crackers and Special K crackers.
With consumers busier than ever and worried about the economy and high unemployment, on-the-go foods like Pop-Tarts and Pringles potato snacks are proving popular because they are relatively inexpensive and easily portable foods.
Kellogg plans to concentrate plenty of effort on the Pringles business. President and CEO John Bryant said in an interview with The Associated Press that while Kellogg has had success with its snacks business in the U.S., the Pringles buyout will take it to the next level.
"Pringles gives us the ability to grow out that global platform," he said.
Indeed, the Pringles brand is sold in more than 140 countries and gets two-thirds of its revenue from abroad. With this new component of its business, Kellogg now has ready-made access to the snacks market overseas.
For the three months ended June 30, Kellogg reported net income of $301 million, or 84 cents per share, down from $343 million, or 94 cents per share, a year earlier.
The current quarter's results included 7 cents per share in costs related to the Pringles deal and a one-time benefit of 2 cents per share tied to the buyout of the snacks maker.
Removing these items, earnings were 89 cents per share.
Analysts expected earnings of 85 cents per share, according to a poll by FactSet.
Revenue for the Battle Creek, Mich., company edged up 2 percent to $3.47 billion. That beat Wall Street's estimate of $3.38 billion.
Shares of Kellogg added $1.63, or 3.4 percent, to close at $49.44 Thursday. Its shares are up 6.7 percent since hitting a 52-week low of $46.33 on July 24.
North American revenue increased 5.9 percent, a good sign since this region is where Kellogg currently gets most of its revenue from. Aside from rising sales of Pop-Tarts, Kellogg also reported higher cereal sales and strong growth in its Canadian and frozen foods businesses. The U.S. morning foods and Kashi unit, the snacks division and cookie, cracker and wholesome snack businesses also recorded sales gains.
International sales fell 3.8 percent in the quarter, with European sales declining 3.6 percent. The company said that Asia Pacific sales dropped on softness in Australia, while Latin American sales climbed 6.8 percent.
David Driscoll of Citi Investment Research said in a client note that the North American performance was better than he expected, but that results abroad were a bit of a disappointment.
"Kellogg still has problem areas, but its North American operations showed real improvement," he wrote.
Kellogg reaffirmed its full-year earnings outlook of $3.18 to $3.30 per share, which includes the anticipated effect of the Pringles buyout. Analysts expect $3.34 per share. Their estimates usually exclude one-time items.