Kellogg's outperforms expectations despite supply chain issues

Cereal producer Kellogg’s has performed better than expected in the second quarter, although supply chain shortages pose significant challenges.

Imbalances

According to CEO Steve Cahillane, the impact of the coronavirus pandemic on the global supply chain remains significant. “A reacceleration of Covid cases has brought on new restrictions, causing temporary shutdowns of production in some countries. Meantime, we and the vendors that supply us are having to manage through bottlenecks and shortages of materials, labour and freight, all created by demand-supply imbalances that are also pushing up costs”, Cahillane told BakeryAndSnacks. He added that production changeovers, due to the unavailability of certain ingredients, were becoming more frequent.

The CEO pointed to China as the cause of the problems: the country was the first to go into lockdown but also quickly made its recovery. In the process, it attracted many raw materials, which led to imbalances in supply throughout the world, the CEO says.

Home consumption remains high

Despite these difficulties, Kellogg’s sales rose 2.6 % to 3.56 billion dollars (3 billion euros) in the last quarter. Analysts had expected sales of 3.43 billion dollars. The adjusted net profit also exceeded expectations.

Just as in the first months of the year, home consumption remained high, the breakfast cereal giant reported. However, there has been a gradual shift as consumers became increasingly more free of restrictions: Kellogg’s saw the first signs of recovery in its out-of-home channel, particularly in on-the-go snacks and packaged products.

Cahillane expects supply chain challenges to continue well into 2022, but to pass eventually. That is because there has been no fundamental change in global demand, only supply bottlenecks, he said. Hence, for the full year, the company is counting on organic sales growth of 0 to 1 %, which is a slight increase from the company’s previous forecast.