Kellanova beats profit expectations, but high prices are hurting sales



Shares of Kellanova, formerly known as Kellogg, climbed Thursday as the snacks and cereal company, whose brands include Pop-Tarts, Cheez-It and Special K, beat fourth-quarter profit expectations, with price increases offsetting a decline in volume.

The company
K,
+3.67%
said the better-than-expected results for the quarter, which began with the spinoff of WK Kellogg Co.
KLG,
+1.41%
on Oct. 2, were fueled by growing sales and profit margin and improved service levels.

“These factors more than offset the impact of a continued rise in price elasticities across categories and markets, reflecting financially constrained consumers,” the company said in a statement.

Read more about price elasticity, and what it means for sales.

The stock rallied 4% in morning trading, putting it on track for the biggest one-day post-earnings gain since it rallied 7.1% on May 6, 2021.

The company reported ahead of the open that it swung to fourth-quarter net income of $27 million, or 8 cents a share, from a loss of $99 million, or 29 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of 78 cents topped the FactSet consensus of 74 cents.

Sales edged up 0.3% to $3.17 billion, above the FactSet consensus of $3.07 billion.

For North America, sales fell 0.8% as a 5.7% increase in price and mix was offset by a 6.5% drop in volume, which was pressured by “rising elasticity across categories.”

Snack sales were roughly flat amid less innovation, particularly in crackers, while sales in the frozen category declined 5% as Eggos consumption turned negative.

Meanwhile, Europe sales rose 9.3%, as an 18.1% surge in pricing and mix countered a 7.8% drop in volume, while Latin America sales climbed 13.9%, as a 6.1% rise in prices and an 8.6% favorable bump from foreign-currency translation offset a 0.8% dip in volume.

In the Asia Pacific, Middle East and Africa region, sales fell 9.9%, as a 13.6% rise in prices and an 8.4% increase in volume was negated by a 31.9% unfavorable current impact.

Separately, free cash flow came in at $968 million. On the post-earnings call with analysts, Chief Executive Steven Cahillane said that was more than anticipated and was “used opportunistically to accelerate share repurchases.”

The stock has advanced 7.4% over the past three months, while the Consumer Staples Select Sector SPDR exchange-traded fund
XLP
has gained 7.5% and the S&P 500
SPX,
-0.06%
has rallied 13.9%.



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