Kellogg CEO Expects Price Increases Amid Cost Inflation, Posts Profit

The maker of Frosted Flakes, Eggos and Cheez-Its, Kellogg on Thursday posted a 15% rise in first-quarter earnings, thanks to price increases already implemented and steady sales growth for its snack brands.

Kellogg now expects its comparable sales to rise 4% this year, up from a prior view of 3%. The measure strips out impacts from currency, acquisitions and divestitures.

Kellogg’s shares rose 3.5% on Thursday, closing at $70.23. The stock is up more than 11% over the past 12 months.

So far, U.S. consumers have mostly withstood food makers’ higher price tags. But Kellogg and other industry giants say that could change later in the year. For Kellogg, price sensitivity is starting to show through in frozen meals and cereal now, Mr. Cahillane said. Snacks, such as its Pringles, are more resilient.

That isn’t surprising given the level of price increases in the grocery store and everywhere, Mr. Cahillane said. Food-at-home prices were up 10% in March, from a year earlier, according to the Consumer Price Index. Overall inflation surged to a four-decade high of 8.5%.

But the reaction among consumers—switching to cheaper brands or buying less food—is less stark than in previous periods of inflation, Kellogg executives said.

Kellogg’s optimism for the year comes despite continued challenges with Kellogg’s iconic U.S. cereal businesses, which suffered from a factory worker strike and a plant fire last year. In the first quarter, its U.S. cereal sales fell 10% from a year earlier, and its brands have lost market share and shelf space.

“We aren’t at all complacent, and we aren’t underestimating the challenge of rebuilding our business,” Mr. Cahillane said.

Mr. Cahillane said the business is rebuilding inventory faster than it initially anticipated. As it regains distribution, it will start to incorporate more marketing of its cereal brands again. He said that by the end of the year, the business could be back to where it was before these disruptions.

Mr. Cahillane said its biggest brands, such as Froot Loops, are mostly back as normal, but smaller ones like All-Bran have a way to go.

“We’ve been very transparent about our supply challenges around cereal,” he said. “Nobody likes it but it’s understood. They know we are doing everything we possibly can.”

For the period ended April 2, Kellogg reported profit of $424 million, or $1.23 a share, versus $371 million, or $1.07, a year earlier. Analysts polled by FactSet recently forecast earnings of 92 cents.

Sales rose 2.4% to $3.67 billion, beating analyst estimates of $3.59 billion.

Write to Annie Gasparro at [email protected]