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Kellogg's surprise sales increase cheers investors

(Reuters) - Kellogg Co (K.N) surprised investors on Tuesday with its first quarterly sales increase in more than two years, showing it was turning a corner after massive cost cuts and a shift to healthier products, sending its shares up 7 percent.

FILE PHOTO: Kellogg's products of U.S. Kellogg Company are offered at a supermarket of Swiss retail group Coop in Zumikon, Switzerland December 13, 2016. REUTERS/Arnd Wiegmann/File Photo

The stock, which has declined 16 percent in the past year, was set for its best day since the 2009 financial crisis.

Kellogg’s legacy cereals business has suffered for several years as people reach for healthier breakfasts items, prompting the company to reduce sugar and artificial ingredients and come out with newer products.

Revenue from Kellogg’s U.S. morning foods unit, which includes cereals, fell 3 percent. Sales at Kellogg’s snack business, which encompasses Cheez-It crackers and Pringles chips, were down 4.5 percent in the latest quarter, partly due a change in its distribution model.

The company has stopped distributing products directly to stores and switched to its more widely used warehouse model to lower expenses.

Piper Jaffray analyst Michael Lavery said the drop in the snack business was not as drastic as he had expected.

“US snacks weathered price cuts and disruptions from its (direct-store delivery) transition better than we had expected,” wrote Lavery, who had estimated a 14 percent drop in snack sales.

The quarter benefited from a 4.5 percent increase in sales in the unit that includes its Kashi whole grain cereals and snack bars as well as frozen foods such as Eggo waffles and Morningstar Farms burger patties.

Kellogg’s net sales rose 0.6 percent to $3.27 billion, while analysts on average had expected it to drop 1.4 percent to $3.21 billion.

Kellogg has also kept a tight lid on costs, through jobcuts and production optimization. Selling and general costs dropped 10 percent in the third quarter.

Net income rose to $297 million, or 85 cents per share, in the third quarter ended Sept. 30, from $292 million, or 82 cents per share, a year earlier.

Excluding items, earning were $1.05 per share, beating the average analyst estimate of 94 cents, according to Thomson Reuters I/B/E/S.

Kellogg also raised its full-year adjusted profit forecast to $4.00-4.06 per share, up from its previous forecast of $3.97-4.03, citing a smaller impact from currency translation than previously anticipated.


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