Rising costs weigh on Kellogg 2Q; revenue rises

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In a Wednesday, July 18, 2012 photo, Kellogg's cereals are on display at a Pittsburgh grocery market. For the three months ended June 30, Kellogg earned $301 million, or 84 cents per share. That’s down 12 percent from $343 million, or 94 cents per share, a year earlier. (AP Photo/Gene J. Puskar)

NEW YORK (AP) — Like many businesses, Kellogg is contending with rising commodity costs and weakness in Europe, which pushed its net income 12 percent lower in the second quarter. But the company's one-two punch of breakfast goods and snacks gave a lift to its 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 growing its snacks business as well, with hopes that its recent $2.7 billion acquisition of Pringles from Procter & Gamble Co. will make it a dominant player in that market as well.

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.

President and CEO John Bryant said in a statement that the company is concentrating on growing its cereal and snacks businesses.

"The acquisition of the Pringles business takes us a long way toward achieving our goals and provides us with significant potential for future growth," he said.

For the three months ended June 30, Kellogg earned $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.

Analysts expected earnings of 85 cents per share, according to a poll by FactSet.

Shares of Kellogg shed 25 cents to $47.56 in premarket trading Thursday.

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.

In North America, revenue increased 5.9 percent. 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, snacks division and cookie, cracker and wholesome snack businesses also recorded sales gains.

Kellogg Co. currently gets most of its revenue from North America, but is looking to expand its international business. Pringles will be a key component of that effort, as the brand is sold in more than 140 countries and gets two-thirds of its revenue from overseas.

But 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.

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.