Kellogg fourth-quarter net income jumps

Kellogg Co. is showing signs of easing its way out of a two-year slump. The cereal maker reported Thursday that its net income rose 23 percent on revenue gains.

The results beat expectations and Kellogg reiterated its full-year guidance, which sent its shares higher.

Kellogg is one of the nation’s largest food makers with products such as Frosted Flakes cereal, Eggo waffles and Keebler cookies. The popularity of such brands has helped the company weather the challenges of the tough economy. But Kellogg has struggled with high ingredient costs, weak consumer spending, a major cereal recall and other issues over the past two fiscal years.

The company’s biggest challenge has been a series of supply chain problems. The Food and Drug Administration found traces of listeria bacteria at its bakery in Augusta, Ga., last year during an inspection. That followed a major cereal recall the prior year and problems at another plant that led to a shortage of Eggo waffles.

In November, Moody’s Investors Service said it was reviewing Kellogg’s investment-grade credit for possible downgrade because the company’s cost-reduction efforts may have cut into its operations too deeply and led to some of the issues with its food safety, which is critical in the food industry.

Kellogg announced last quarter that it had learned from its lessons and was making major investments in its supply chain to similar problems in the future. It also has spent more on marketing and brand-building efforts to help drive its sales in the long term. And, like many of its peers, has raised its prices to offset higher ingredient costs.

These moves showed signs of paying off on Thursday.

The company reported that it earned $232 million, or 64 cents per share, for the quarter ended Dec. 31. That’s up from $189 million, or 51 cents per share, in the same quarter last year. Analysts expected 63 cents per share, according to FactSet.

Kellogg’s revenue rose 5 percent to $3.02 billion; analysts expected $2.99 billion.

The company said its total sales volume decreased slightly during the quarter as cereal sales remained soft in the U.S. and Europe. That was slightly offset by stronger sales of snacks in North America and frozen foods in the Asia-Pacific and Latin American regions.

Kellogg’s investment in its manufacturing and resuming executive incentive bonuses dampened the company’s profitability during the period, but it still managed to wrap up the tough year on a positive note.

“If you take all the pluses and minuses and wrap it together ... the business is performing better than the superficial numbers would suggest,” said Kellogg CEO John Bryant.

For the full year, net income fell to $1.23 billion, or $3.38 per share, from $1.25 billion, or $3.34 per share. Its revenue rose 7 percent to $13.2 billion from $12.4 billion.

Kellogg said it expects sales volume and margin pressure to continue this year but expects its recent investments to pay off over time. The company reaffirmed its guidance of annual revenue up 4 percent to 5 percent with net income, excluding currency fluctuation, up 2 percent to 4 percent.

Shares of the Battle Creek, Mich.-based company rose $1.28, or 2.6 percent, to close at $50.59 Thursday.

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Sarah Skidmore contributed to this report from Portland, Ore. Mae Anderson contributed from New York.

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