Kellogg Co last week forecasted 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 per cent in the first quarter, compared to a 0.6 per cent 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 per cent rise in pricing, but it comes off as “disappointing” at a time when investors are more sensitive to volume numbers.
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 sees organic net sales growth between 6 per cent and 7 per cent in 2023, against its earlier forecast for 5 per cent to 7 per cent growth.
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