By Uday Sampath Kumar and Jessica DiNapoli
(Reuters) -Kellogg Co raised its 2022 forecast on Thursday, banking on more price increases to help counter the impact of supply shortages stemming from a workers’ strike at the company’s U.S. plants last year and the war in Ukraine.
Shares of the Michigan-based company rose 4% after it also beat first-quarter profit estimates.
Costs from freight and ingredients such as wheat, corn and edible oils have surged in the last year due to pandemic-induced disruptions to the global supply chain, forcing the packaged food industry to raise product prices to cushion the hit to their profit margins.
Kellogg, which also makes Pringles and Eggo waffles, said it was increasing the pace of price hikes it pushes to consumers as costs soar, and was expecting demand for some cereals to slow as surging global inflation bites into spending power.
Regarding shoppers swapping out Kellogg products for cheaper items, CEO Steve Cahillane said “we haven’t seen evidence yet of that but as we look forward – just because inflation is so intense, and because the benefits of stimulus money is so significant – our forecast is it (will) have pressure.”
The company plans to emphasize the affordability of a bowl of cereal and milk as a meal in marketing and merchandising, Cahillane said.
“It’s convenient and it’s very affordable when you think about the number of bowls,” in a box, he said.
The company’s cereal sales in North America fell by 10.3% in the first quarter due to a near three-month long strike that started in October at its plants that make Froot Loops, Corn Flakes and other cereal brands.
Kellogg warned that cereal shortages stemming from the strike could last for at least the first half of the year.
Russia’s invasion of Ukraine is also expected to hurt supplies in the second half of the year, Kellogg said, as that part of Europe is a major source of ingredients for packaged food companies.
Kellogg has relied on palm oil from Indonesia due to the lack of sunflower oil from Ukraine, after the Russian invasion earlier this year, Cahillane said. Kellogg has not been affected by the Indonesian export ban of palm oil, which is expected to be short-lived, he said.
Analysts said Kellogg raising its 2022 organic sales growth forecast to 4% from 3% despite setbacks was a relief to investors.
“There’s been a lot of concern from investors about Kellogg’s ability to maintain profit guidance, especially given the company’s possible exposure to wheat from Eastern Europe,” J.P. Morgan analyst Ken Goldman said.
“Today’s results could lay many of these fears to rest, at least for now.”
(Reporting by Uday Sampath in Bengaluru and Jessica DiNapoli in New York; Editing by Krishna Chandra Eluri and Nick Zieminski)