Kellogg Company announced first-quarter 2022 results and affirmed its full-year earnings guidance.
Highlights:
- Sustained net sales growth, led by snacks, international momentum and positive price/mix.
- Mitigated the profit impacts of high cost inflation, economy-wide bottlenecks and shortages, and the residual impact of last year's fire and strike through productivity, revenue growth management, and discipline on investment.
- Restoring North America cereal inventory faster than anticipated from last year's fire and strike.
- Raising full-year guidance for organic-basis net sales growth, reflecting momentum and revenue growth management actions.
- Affirming guidance for operating profit, earnings per share, and cash flow, as the improved sales outlook offsets incremental pressures from accelerated cost inflation and business disruption, including impacts related to the war in Ukraine.
"We are pleased to report another quarter of solid results, getting off to a better start to the year than we had expected," said Steve Cahillane, Kellogg Company’s chairman and chief executive officer. "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. 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.
"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."
First-quarter consolidated results
Kellogg’s first-quarter 2022 GAAP (or "reported") net sales increased by more than 2% year on year, as positive price/mix and growth momentum of snacks brands in all four regions more than offset adverse currency translation and the impact of insufficient finished-goods inventory in North America cereal related to a fire and labor strike in the second half of 2021. On an organic basis, which excludes the impact of currency, the company's net sales grew just over 4%.
Reported operating profit in the first quarter increased 10% year on year, as favorable mark-to-market impacts more than offset adverse currency translation and the residual impacts of the second-half 2021 fire and strike in North America cereal. On an adjusted basis, which excludes mark-to-market and one-time charges, operating profit declined by 4%, and by only 2% excluding currency translation.
Reported earnings per share increased by approximately 15% from the prior-year quarter primarily due to favorable mark-to-market gains, as well as by a lower effective tax rate and a reduction in shares outstanding due to share repurchases. On an adjusted basis, which excludes one-time charges, earnings per share decreased by 1%, and excluding currency translation, adjusted earnings per share improved year on year by 1%.
Year-to-date net cash provided by operating activities was $327 million, a substantial increase over the year-earlier period's $235 million on the strength of higher earnings and lower incentive compensation payments. After capital expenditures of $138 million, cash flow, defined as net cash provided by operating activities less capital expenditure, was $189 million through the first three months of the year, improving meaningfully from the prior-year period's $62 million.
First-quarter business performance
Despite an unusually challenging business environment, in which economy-wide bottlenecks and shortages and high cost inflation were exacerbated by the war in Ukraine during the quarter, the company sustained particularly strong momentum in snacks worldwide; largely offset high costs through productivity, revenue growth management, and disciplined investment; and made good progress toward recovering inventory and sales in North America cereal, which was beset by a fire and labor strike in its manufacturing network in the second half of last year.
Kellogg North America’s reported net sales in the first quarter declined by less than 1%, as growth momentum in snacks and positive price/mix from revenue growth management actions were offset by volume declines related to lapping strong 2-year comparisons and to supply disruptions, most notably low cereal inventory stemming from last year's fire and labor strike. On an organic basis, net sales decreased by less than 1%. Kellogg North America's reported operating profit declined 11%, due to the residual impacts of the second-half 2021 fire and strike in North America cereal. On an adjusted and currency-neutral adjusted basis, which exclude one-time charges, operating profit decreased by 10%.
Kellogg affirms full-year financial guidance
Reflecting its first-quarter results, underlying trends, and changes in the operating environment, Kellogg Company has updated its full-year 2022 guidance as follows:
- Raises its guidance for organic-basis net sales growth to approximately 4%, from its prior guidance of approximately 3%. This reflects momentum in its business, particularly snacks globally and noodles in Africa, as well as by higher price/mix growth required to cover incremental cost inflation in the economy.
- Affirms its guidance for adjusted-basis operating profit growth of 1-2% on a currency-neutral basis, as the improved outlook for net sales offsets incremental pressures from accelerated cost inflation and business disruption, including impacts related to the Russia/Ukraine situation.
- Affirms its guidance for adjusted-basis earnings per share growth of 1-2% on a currency-neutral basis, reflecting the unchanged operating profit outlook as well as offsetting impacts of lower other income and a lower effective tax rate.
- Affirms its guidance for net cash provided by operating activities of approximately $1.7 - $1.8 billion, with capital expenditure of approximately $0.6 billion. As a result, cash flow is still expected to be in the $1.1 -$1.2 billion range.
