Kellogg Company (K Quick QuoteK - Free Report) has been gaining from strength in its brand portfolio, fueled by measures to boost innovation. The convenience food maker has been expanding its business through acquisitions.

The factors mentioned above benefited Kellogg’s second-quarter 2023 results, with the top and the bottom line increasing year over year. Management recently raised its 2023 sales and profit view because of solid first-half results and robust trends.

Let’s delve deeper.

Solid Q2 Results, Raised View

In the second quarter of 2023, Kellogg reported adjusted earnings of $1.25 per share, which increased by 6%. The company recorded net sales of $4,041 million, advancing 4.6%, backed by favorable price/mix and continued snack momentum. Organic net sales (excluding the currency impact) increased 7%.

For 2023, management expects organic net sales growth to be up nearly 7% compared with the earlier guidance of 6-7% growth. The revised outlook reflects solid first-half results, price/mix growth and a gradual increase in price elasticities. The adjusted operating profit is expected to rise 9-10% at constant currency, up from the earlier guidance of 8-10% growth. The outlook reflects efforts toward profit-margin recovery.

Factors Working in Kellogg’s Favor

Kellogg’s portfolio consists of strong brands such as Pringles, RXBAR, Bear Naked, Cheez-It, and Rice Krispies Treats, among many others. The company’s frozen foods brands, like Morningstar Farms and Eggo, have been aiding growth. On its second-quarter earnings call, management highlighted that Pringles's brand outperformed the salty snacks category.

Kellogg is dedicated to augmenting its portfolio by adding more products under existing brands, innovation and marketing initiatives. The company has been focused on investing in brand-building efforts. In this respect, it invests in digital media, consumer promotions and traditional advertising. Kellogg has also been enhancing its in-store capabilities, like increasing the sales force of its struggling businesses.

Kellogg acquired protein bar maker Chicago Bar Company in 2017. Chicago Bar Company makes RXBAR, considered one of the fastest-growing nutrition bar brands in the United States. The company’s Pringle's buyout has been lucrative. With the Pringles deal, Kellogg transformed itself from a large U.S. snacks business to a true global snacks player. Kellogg also continues to expand its acquired brands through new product introductions.

Several other companies in the food space, like The Kraft Heinz Company (KHC Quick QuoteKHC - Free Report) , Hormel Foods Corporation (HRL Quick QuoteHRL - Free Report) and McCormick & Company, Incorporated (MKC Quick QuoteMKC - Free Report) , are benefiting from acquisitions.

In April 2022, Kraft Heinz acquired a majority stake in a Brazil-based condiments and sauces company — Companhia Hemmer Industria e Comercio ("Hemmer"). The buyout has widened Kraft Heinz's International Taste Elevation platform and enhanced its presence across emerging markets. In January 2022, KHC acquired an 85% stake in Germany-based Just Spices GmbH (“Just Spices”). The buyout enhanced its direct-to-consumer operations and go-to-market expansion.

Hormel Foods is strengthening its business through strategic acquisitions. In the fourth quarter of fiscal 2022, HRL announced its acquisition of a minority stake in Indonesia-based food and beverage company PT Garudafood Putra Putri Jaya Tbk. The move is likely to help Hormel Foods expand its presence in Indonesia and Southeast Asia. In June 2021, HRL acquired the Planters snacking portfolio from Kraft Heinz.

McCormick has strategically increased its presence through acquisitions and strengthened its portfolio. In December 2020, MKC bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick acquired the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Wrapping Up

Kellogg has been seeing the adverse impacts of high input cost inflation and economy-wide hurdles and shortages to some extent. The company has been grappling with rising SG&A expenses for a while now. As the company has resumed meetings and travel with businesses returning to pre-pandemic levels, we expect SG&A expenses to remain elevated.

The company is on track with effective revenue growth management and productivity actions to counter the rising inflationary environment.