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Rising Costs Bite Kellogg

Earnings slip on higher commodity and advertising expenses. The food maker backs its 2008 forecast.
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Kellogg's (K) - Get Kellogg Company Report fourth-quarter earnings slipped 3%, in line with expectations, as an increase in marketing and higher commodity costs weighed on the bottom line.

The food company also backed its 2008 forecast, which falls below Wall Street's current projection.

Earnings for the December quarter dropped to $176 million, or 44 cents a share, from $182 million, or 45 cents a share, a year earlier. The per-share results matched analysts' target, based on Thomson Financial data.

Sales for the maker of Eggo waffles, Special K cereal and Cheez-It crackers rose to $2.79 billion from $2.58 billion a year earlier. Analysts, on average, were looking for sales of $2.74 billion.

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Kellogg's gross margin for the quarter slid 50 basis points to 42.8%, hit by double-digit increases in commodity, fuel and energy costs. The company also significantly lifted its advertising budget, spending more than $1 billion for the year.

For 2008, Kellogg reiterated a prior forecast for earnings of $2.92 to $2.97 a share, below analysts' average projection of $3. In 2007, the company earned $2.76 a share.

"We remain confident in our business model and operating principles," said David Mackay, Kellogg's chief executive. "Our significant investments back into the business provide us with momentum going into 2008. To partially offset the continued cost inflation, we have increased prices and pursued various productivity initiatives."

This article was written by a staff member of