Milling & Baking News - August 9, 2011 - 16

Financial Results 

Kellogg North America cereal sales climb 13% as category dynamics improve
BATTLE CREEK, MICH. — The Kellogg Co. was “pleased” with second-quarter results in its North America cereal business, as internal net sales during the period ended July 2 rose 13%. The growth largely was driven by softness in the second quarter of fiscal 2010, but category dynamics also continued to improve during the quarter, John Bryant, president and chief executive officer, said during a July 28 conference call with analysts. “We estimate that across all outlets, (cereal) category sales grew for the first time since the third quarter of 2009,” Mr. Bryant said. He noted that growth was driven by good base performance, which was supported by 2011 innovation and first-half net price realization. Kellogg’s share of the cereal category grew 1.7 points in measured channels during the second quarter, bringing the company to a 35.5 share. Additionally, Mr. Bryant said Kellogg experienced broadbased share gains across virtually all of its alternative channels during the period. “Our strong commercial plans helped to generate this performance,” he said. “For example, with the support of an effective advertising campaign, we saw high-singledigit growth in Frosted Flakes. Our innovation continued to drive results, as the recent launch of Crunchy Nut continued to perform well with a 0.6 share, and MiniWheats new innovation, Touch of Fruit, had a 0.4 share.” He added that Kashi cereal had another strong quarter, delivering mid-single-digit internal net sales growth, while Bear Naked cereal grew double digits. Looking ahead to the second half of 2011, Mr. Bryant said Kellogg expects to benefit from the recently launched Rice Krispies Gluten Free cereal and Fiber Plus Caramel Pecan Crunch cereal. “We are targeting Rice Krispies Gluten Free to a passionate community, and as a result, it was the No. 1 selling Kellogg product on Amazon in June,” he said. Pressed during the question-andanswer portion of the conference
16 / August 9, 2011 Milling & Baking News

call to elaborate on how the cereal category is getting better, Mr. Bryant said, “I think when you think about the cereal category, the cereal category

and wellness perspective. It’s on trend from an older population perspective. And I think there’s opportunity to drive consumption of cereal beyond just the breakfast occasion. “So I think there are a lot of reasons to believe a lot of tailwinds on the cereal category. Just given the sheer size of the category, it’s going to be more moderate

‘I think what we need to do in the cereal category is to see an increased rate of innovation across the category, increased level of brand building across the category, and bring consumers into the category.’
— John Bryant, president and chief executive ofﬁcer

performance is based upon the performance of all the manufacturers within the category. I think we are happy with our business. We are driving about two-thirds of the innovation sales in U.S. cereal so far this year. Our 5% consumption growth in the second quarter was strong. Innovation is working. We feel good about the business. “I think the category is a little softer than what we would like it to be, and I think it does have the potential to improve in the back half of the year. That doesn’t necessarily mean that our business will grow even faster. That might just mean that we gain a little bit less share.” Mr. Bryant also was asked to discuss how the growing frozen breakfast category will impact the cereal category in the short and long term. While noting that demand for the company’s Eggo and Morningstar Farms brands indeed has been strong, he stressed that cereal has “great growth potential in the U.S.” “I’m not suggesting it’s going to be a mid-single-digit category, but it can certainly grow in that sort of lowsingle-digit range,” he said. “I believe that’s going to continue to happen, because it’s on trend from a health

growth rates, but I don’t think what we’re seeing right now is a weak cereal category because we have a strong frozen breakfast category. I think what we need to do in the cereal category is to see an increased rate of innovation across the category, increased level of brand building across the category, and bring consumers into the category.” For the quarter ended July 2, Kellogg had income of $343 million, equal to 94c per share on the common stock, which compared with $302 million, or 80c per share, during the same quarter of the previous year. Sales for the quarter were $3,386 million, up 11% from $3,062 million during the same quarter of the previous year. For the six months ended July 2, the company as a whole had income of $709 million, or $1.95 per share, down 2% from $720 million, or $1.89 per share, during the same period of the previous year. Sales for the period were $6,871 million, up 8% from $6,380 million. MBN
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Milling & Baking News - August 9, 2011

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