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Kellogg Co., the world's largest cereal company, raised its annual earnings forecast after its cost-cutting program helped make up for a slumping breakfast business.
Profit will be $4.11 to $4.18 a share this year when removing the effects of currency, the Battle Creek, Michigan-based company said in a statement Thursday. It had previously projected $4 to $4.07 a share.
Kellogg's move to embrace zero-based budgeting an increasingly popular form of cost cutting in the food industry is boosting its margins. The company also benefited from growth of Pringles potato chips and a less-dire-than-expected business in Venezuela, which has suffered from runaway inflation.
"We're making good progress on our priorities," Chief Executive John Bryant said. The belt-tightening programs are "contributing to more profit-margin expansion than we previously anticipated," he said.
The stock rose as much as 3.7 percent to $84.10 in New York trading after the results were posted, marking the biggest intraday jump in more than a month. It had already gained 12 percent this year through Wednesday.
Last quarter, profit was 91 cents a share, excluding some items, which matched analysts' estimates. But sales fell more than 6 percent to about $3.26 billion in the quarter, worse than the average projection of $3.36 billion.
Kellogg is still trying to turn around its struggling morning-foods division, which has been hurt by a prolonged slump in U.S. cereal sales.
The company, known for brands like Special K and Froot Loops, has said the category can return to growth this year as younger consumers embrace the breakfast staple as a snack.
In the 13 weeks ended July 10, cold cereal sales dropped 1.4 percent in the U.S. compared with the same period a year earlier, according to data compiled by Bloomberg Intelligence.
Cereal sales have been sliding since 2013 and are expected to continue dropping at least through 2020, according to Euromonitor.
General Mills Inc., Kellogg's biggest cereal rival, has worked to boost sales by adding gluten-free Cheerios and removing artificial colors and ingredients from products such as Trix and Reese's Puffs.
Overall, its cereal sales slipped 1 percent in the fiscal year that ended May 29, but started to turn positive in recent months, according to the company.
Kellogg also is trying to make its products more natural. It has said that 75 percent of its cereals in North America are made without artificial colors, while more than half are produced without artificial flavors.
Kellogg has vowed to rid the ingredients have from its cereals and snack bars by the end 2018.
Kellogg has been mentioned as a potential takeover target amid consolidation among large U.S. food producers. With 3G Capital the private equity firm known for its cost-cutting zeal, in charge at Kraft Heinz Co. there's been increased pressure on food companies to improve margins. Kellogg is targeting about $200 million in savings this year.