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Kellogg Snack Sales Boost Quarterly Bottom Line

Boxes of Kellogg's Special K cerealon a supermarket shelf.
Nati Harnik
Boxes of Kellogg's Special K cerealon a supermarket shelf.

Cereal maker Kellogg reported a 17% increase in quarterly earnings due to a lower tax rate, a weaker U.S. dollar that helped boost international results, and strong U.S. snack sales.

The world's largest breakfast cereal maker also slightly raised its full-year profit forecast, and its shares hit an all-time high on the New York Stock Exchange.

The maker of Frosted Flakes cereal and Keebler cookies said first-quarter net income was $321 million, or 80 cents a share, compared with $274 million, or 68 cents a share, a year earlier.

Earnings in the latest quarter included a $40 million tax benefit.

Excluding the tax benefit, earnings were 70 cents a share, beating analysts' average estimate of 68 cents, according to Reuters Estimates.

Like many U.S. food makers, Kellogg has been struggling with higher prices for commodities like corn and wheat. The company raised prices on its flagship cereal line last year in a bid to offset some of those additional costs.

First-quarter revenue rose 9% to $2.96 billion, topping analysts' average forecast of $2.85 billion.

Internal sales, which exclude currency fluctuations and other factors, rose 7%.

"Most of the beat on sales was in North America, with cereal above our estimate for flat sales and North American snacks results also above expectations," Pablo Zuanic, an analyst at J.P. Morgan Securities Inc., said in a research note.

Kellogg, based in Battle Creek, Michigan, has benefited in recent years from a steady stream of higher-priced products such as new varieties of Special K and All Bran cereals.

At the same time it has also sharply increased spending on advertising.

Sales rose 7% in North America, led by an 11% internal sales increase in the retail snacks business. North American internal sales of cereal were up 4%.

International sales rose 12%, but only 5% when currency fluctuations were excluded.

Kellogg said it now expects earnings for the year of $2.70 to $2.74 a share, up from a previous forecast $2.68 to $2.73. The forecast includes the tax benefit in the first quarter. The company said in January it expected increased fuel, energy, commodity and benefit costs to cut earnings by 18 cents to 22 cents a share this year.

Through Friday, the stock traded at 17.7 times estimated 2008 earnings, compared with a multiple of 17.5 for rival General Mills.

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