Kellogg Profits Drop for Q2 and Q3

It's been a challenging year for Kellogg Co. with reported third-quarter earnings of $338 million, or 90 cents per share, down from $361 million, or 94 cents per share, during the same period a year ago.

Kellogg, the world's largest cereal manufacturer, said yesterday that the decrease in sales were due to a few extenuating factors including a drop in sales, vigorous competition and the lingering impact of some of the largest food recalls in 2010.

"We are addressing the major issues that took us off course in 2010. We are also fully aware of the tough consumer and economic environment in which we are competing and operating, and the degree of volatility that this environment can create," said Kellogg's CEO David Mackay.

Kellogg recorded similarly disappointing results in the second-quarter of 2010, reporting earnings of $302 million, or 79 cents per share for the quarter, down from $354 million, or 92 cents per share in the prior year.

In June, Kellogg recalled 28 million boxes of cereal after 20 people complained about a bad smell and taste which made them sick. The four affected Kellogg cereals were Froot Loops, Honey Smacks, Apple Jacks, and Corn Pops. The recall prompted US Representative Rosa DeLauro to question the US' food safety system, further highlighting Kellogg's plight. Kellogg attributed the problem on excess chemicals in box liners it got from a supplier.

The recall couldn't have come at a worst time fiscally for Kellogg, as the cereals in question were at the core of its back-to-school promotions. Similarly in 2009, Kellogg was forced to recall peanut products and Eggo waffles which caused a similar disruption in supply.

Despite Kellogg promoting a positive outlook for 2011 - due in part to Kellogg claiming to introduce new products and raising prices slightly to increase revenue - Tom Graves from Standard & Poor's Equity Research said the outlook for Kellogg in 2011 was disappointing, particularly given the company's expectation of a flat or mild drop in sales volume on top of profit margin pressures.

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