PORTLAND, Oregon (AP) — Kellogg Co.'s fourth-quarter net income climbed 7 percent despite falling volumes as the world's biggest cereal maker lowered costs and raised prices.
It was a difficult and disappointing year for Kellogg, which struggled with intense competition, lower cereal sales and major food recalls. But there were signs that 2011 may be better for Kellogg, and its shares rose in trading Thursday.
Kellogg, which makes Frosted Flakes, Pop Tarts and other foods, is increasing its investment in new product development by 25 percent after scaling back during the recession. It also will spend more on auditing suppliers and testing raw materials to avoid a repeat of a major cereal recall and problems with its Eggo waffle distribution that hammered its results.
It is also increasing prices on some of its products to offset higher ingredient costs. The company already put some increases in place during 2010 but those are expected to continue through the year as the cost for corn and wheat soar.
Many businesses are deciding to boost prices to contend with higher costs. Whirlpool Corp. and Swedish rival Electrolux AB both said Wednesday that they were increasing prices because their raw material costs are on the rise. And consumer product makers Colgate-Palmolive Co. and Procter & Gamble Co. both said last week that they are likely to increase prices to cope with higher commodity costs.
Kellogg's price increases also helped make up for softer sales volume during the period.
The company reported that its fourth-quarter revenue dipped 1 percent to $2.86 billion but that still topped the average forecast of analysts surveyed by FactSet for revenue of $2.85 billion.
Kellogg earned $189 million, or 51 cents per share, during the period, meeting analyst expectations. This compares with $176 million, or 46 cents per share, a year earlier.
"We lost some of our momentum in 2010, we're trying to get that back," said John Bryant, Kellogg's new CEO.
Bryant, a 13-year Kellogg veteran, took over as CEO at the beginning of the year when former CEO David Mackay retired. Mackay, also Kellogg's president and a board member, is staying through March to aid the transition.
Kellogg reaffirmed its outlook for 2011, saying it expects to earn $3.39 to $3.46 per share, including the anticipated effects of currency fluctuations. Analysts predict $3.47 per share for the year.
Shares of Kellogg, based in Battle Creek, Michigan, rose $1.60 — roughly 3 percent — to $51.96 by midday.