Kellogg boosted its prediction for 2022 on Thursday, betting on higher prices to help offset supply difficulties caused by a workers’ strike at the company’s US operations last year and the war in Ukraine.
The Michigan-based company’s stock jumped 4% after it topped first-quarter profit expectations.
Due to pandemic-related disruptions in the global supply chain, freight and ingredients such as wheat, corn, and edible oils have increased dramatically in the previous year, prompting the packaged food industry to hike product prices to compensate for the loss of profit margins.
Kellogg, which also makes Pringles and Eggo waffles, said it was speeding up the rate at which it raises prices for consumers as costs rise, and that demand for particular cereals would drop as global inflation eats into consumers’ purchasing power.
Due to a nearly three-month strike at its plants that create Froot Loops, Corn Flakes, and other cereal brands, the company’s cereal sales in North America decreased by 10.3 percent in the first quarter.
Kellogg, which makes Pop Tarts, increased its organic sales growth target for 2022 from 3% to 4%.
Kellogg warned that cereal shortages emanating from the walkout could endure for at least the first half of the year.
The Russian invasion of Ukraine, which is a major supply of ingredients for packaged food firms, is projected to disrupt supplies in the second half of the year, according to Kellogg.
Despite the losses, experts said Kellogg’s boosting its organic sales growth projection to 4% from 3% for 2022 was a relief to investors.
“Investors have expressed concern about Kellogg’s ability to sustain earnings forecasts, particularly given the company’s prospective exposure to wheat from Eastern Europe,” said JP Morgan analyst Ken Goldman.
“At least for now, today’s results could put many of these anxieties to rest.”