Kellogg Co stood by its 2011 earnings target despite beating expectations in the second quarter, as price increases that it made to offset higher ingredient costs could hurt demand.Kellogg, the world’s largest cereal maker with brands including Corn Flakes, Frosted Flakes and Rice Krispies, also said it will raise its capital spending this year by more than $100 million. It plans to use that money to improve infrastructure and equipment after a recall of millions of boxes of cereal last year because of an unusual smell.The company said it plans to spend more money over the next couple of years. That kind of investment has been important for Kellogg’s success in the past and would be useful again, said Edward Jones analyst Matt Arnold.“I wouldn’t be at all bothered if they used 2011 to do that,” he said. “They kind of need to reassert themselves as a consistent player again after having a pretty dicey 2010.”Kellogg expects its full-year cost inflation to be around the high end of its 7 per cent to 8 per cent forecast. The company is 90 per cent hedged on commodities, but cited the impact of higher spot prices for the remaining 10 per cent. Kellogg shares were nearly flat in midday trading.Kellogg expects 2011 net sales to grow 4 to 5 per cent, compared with an earlier forecast of 4 per cent. For the second half of the year, Kellogg said sales growth should come from higher prices, which may cause shoppers to buy fewer of its cereals and other products, which include Pop-Tarts and Keebler cookies. Kellogg said volume should be down slightly in the second half of the year and about flat for the whole year.Investors may have thought Kellogg had an easy second half of the year, and that keeping the forecast unchanged was a sign of conservatism, Chief Executive John Bryant said.The company stood by its target for low single-digit profit growth for the year, saying that implied earnings of $3.42 to $3.49 per share, including a gain of 9 cents from foreign currency exchange.Net income was $343 million, or 94 per share, in the second quarter, compared with $302 million or 79 cents per share a year earlier. Analysts on average were expecting 91 cents per share, according to Thomson Reuters.
From / Gulf Today