Kellogg (K) is still working overtime to keep supplies of its most beloved cereals not named cornflakes — Froot Loops, Apple Jacks and Corn Pops — in stock as people continue to consume large quantities of food at home amidst the COVID-19 pandemic.
"The cereal business that was a very low growth business right before we started making investments clearly before the pandemic came along. So you're always going to operate with fairly tight capacity. And so what happened all the way back to the original surge of the pandemic is our inventories went to zero and in fact the negative, and we've been playing catch up ever since. It's not just Froot Loops, but those same [production] lines run Apple Jacks and Corn Pops and those brands really took off. And so we found ourselves with limited capacity," Kellogg's CEO Steve Cahillane tells Yahoo Finance.
Cahillane says Froot Loops, Apple Jacks and Corn Pops aren't out of stock at retailers, it's just that supply is limited. Hence, Kellogg hasn't been able to offer sales-driving promotions on these household name cereals as it normally would. But, the tight supply dynamic should change in coming months as more production kicks in.
"We're going to be in good shape in the second half of the year," Cahillane adds.
Despite the tight supplies of its popular cereals, Kellogg had a solid first quarter as at-home consumption of packaged food remained elevated. Organic net sales rose 4.2% from a year ago, while adjusted operating profits gained 13.3%. Sales were paced brands such as Pringles, Cheez-Its and Eggo waffles.
Here is how Kellogg performed compared to Wall Street estimates for the first quarter:
Net Sales: $3.58 billion vs. $3.38 billion
Diluted EPS: $1.11 vs. $0.96
Kellogg shares surged 8% on the hearty earnings and sales beats. The company also raised its full-year earnings growth guidance to a range of 1% to 2% from 1% previously.
Cahillane says his team is keeping a close eye on inflation and is taking actions to offset the higher costs of doing business.
"We are seeing inflation really everywhere," Cahillane says.
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