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Kellogg's bleak outlook raises stakes on Pringles

Published:Tuesday | April 24, 2012 | 12:00 AM

Kellogg's lowered forecast for 2012 is raising the stakes on the breakfast food giant's purchase of Pringles earlier this year.

The Battle Creek, Michigan-based company on Monday cited a weaker-than-expected first quarter in slashing its forecast for the full year. The move sent the company's shares down $2.98, or about five per cent, to $51.01.

Kellogg Co. currently gets most of its revenue from North America, where growth in the packaged food industry has been relatively weak. But in February, the company announced that it would pay US$2.7 billion to buy Pringles potato snacks from Procter & Gamble.

Dual benefit

The acquisition is intended to have a dual benefit for Kellogg. The deal will strengthen the company's footprint overseas; Pringles are sold in more than 140 countries and the brand gets two-thirds of its revenue from abroad.

Kellogg is also hoping the addition helps it move beyond the breakfast table, as the appetite for on-the-go snacks grows rapidly in emerging markets like China and India. Kellogg's cupboard of savoury snacks currently include Cheez-It, Keebler's Club crackers and its new Special K crackers.

The Pringles purchase, expected to close this summer, would catapult Kellogg to the No. 2 ranking among savoury snack makers after PepsiCo Inc's Frito-Lay.

New expectations

For 2012, Kellogg said that it now expects a profit of between $3.18 and $3.30 per share. That includes a charge of six cents to 11 cents per share from its Pringles deal. The company blamed results in its European business and weak volume growth in select US categories for the lowered forecast.

Analysts surveyed by Fact Set were predicting 2012 earnings of $3.48 per share.

The news sent Kellogg stock down closer to its 52-week low of $48.10 set in late November. Its shares traded as high as $57.70 last May.

In early February, Kellogg had predicted 2012 net income would rise two to four per cent, excluding changes in currency values, with another performance measure - operating profit - unchanged for the year. The company now says it expects operating profit to decrease 2 to 4 per cent in 2012.

- AP