July 30/Hamilton, Ontario/The Hamilton Spectator -- A major cereal recall and soft sales dragged Kellogg Co.'s second-quarter net income down 15% and led the food maker to cut its full-year outlook.

The results were below Wall Street's expectations and the company's shares fell sharply in trading.

Kellogg, which makes products such as Pop Tarts, Frosted Flakes and Cheez-Its, said the results were disappointing. The company reported it earned $302 million, or $0.79 per share for the quarter, down from $354 million, or $0.92 per share in the prior year. Revenue fell 5% to $3.06 billion.

That is well below the $0.94 per share on revenue of $3.29 billion that analysts expected, according to a Thomson Reuters poll.

Kellogg recalled 28 million boxes of Apple Jacks, Corn Pops, Froot Loops and Honey Smacks cereal last month after about 20 people complained the boxes had an unusual smell and flavor, which the company blamed on a chemical in the boxes' liners.

The company later identified elevated levels of chemicals in the liner as the cause and said yesterday it was a supplier issue. The recall hurt revenue and cut profit by $0.10 per share for the quarter.

Kellogg also saw its cereal revenue hurt as it limited the number of products it sells and faced a tough comparison to last year when cereal sales were on a major upswing.

The company sold about the same amount of cereal for the quarter but struggled with increased promotions at retailers that cut prices and tougher competition.

Analysts said the quarter was disappointing for a company that typically delivers solid growth. Janney Capital Markets analyst Jonathan Feeny said in a research note the only factor Kellogg did not cite for declining cereal revenue is "aliens took away cereal in a UFO." But he limited his concern, saying cereal has been a great category for a long time and that Kellogg would find a way to recover.  

From the August 3, 2010, Prepared Foods' Daily News
For more of the latest news from the food and beverage industry, visit Prepared Foods' Daily News