Kellogg Co, the world's largest maker of breakfast cereal, on Monday reported an 11 percent increase in quarterly earnings on strong sales of new products like yogurt-flavored Special K cereal and a lower tax rate.
But profit from operations rose only 2 percent, hit by the upfront expenses for cost-reduction programs, higher fuel and employee benefit costs and competitive pressures in some international markets, the company said.
Kellogg stock dipped to $46.20 on Monday morning on the Inet electronic broker system from Friday's New York Stock Exchange close of $46.46.
"The operating earnings were disappointing," William Leach, food industry analyst at Neuberger Berman, said. "Everyone (in the industry) is faced with much higher costs than expected."
Third-quarter net income rose to $274.3 million, or 66 cents per share, from $247.0 million, or 59 cents per share, a year ago.
Wall Street analysts had expected earnings of 61 cents to 68 cents per share with an average view of 64 cents per share, according to Reuters Estimates.
Sales rose 7.3 percent to $2.62 billion. Excluding the impact of the weak dollar, which lifts the value of overseas sales by US companies, sales were up 6.6 percent, the company said.
In recent months, Kellogg has succeeded in stealing cereal market share from General Mills Inc, partly because it has kept its promotional prices below those of its biggest rival.
Both companies raised prices last year to help cover soaring food commodity costs.
Kellogg also said it now expects 2005 earnings of $2.32 to $2.34 a share, up from its prior forecast of $2.30 to $2.33 a share.
Earnings are expected to be flat to down slightly in the fourth quarter due to one less selling week compared with a year earlier, and continued investments in marketing.
For 2006, the company forecast earnings of $2.50 to $2.55 a share, excluding an 8-cents-a-share impact from expensing options. Analysts on average forecast $2.62 a share, according to Reuters Estimates.
Kellogg's stock trades at about 18 times analysts' average 2006 estimated earnings, compared with an average valuation of 16 times 2006 earnings for companies in the Dow Jones US Food Producers index .DJUSFO>, of which it is a component.