“Industry-wide elasticities continue to be a growth headwind across our retail categories, but our return to full commercial activity, including our launches of innovation reaching shelves during the second quarter led to volume growth in both consumption and shipments in our US retail business,” CEO Steve Cahillane told investors Aug. 1 during the company’s second quarter earnings call.
He added that currently consumers are “so strained,” especially those with household incomes under $100,000 and with children, that “delighting consumers is never more important than it is right now.”
Kellanova rolls out ‘plethora of innovations’
Kellanova is doing this and driving volumes in part by “returning to a full innovation calendar” with a “plethora of innovations launching across every [region] this year, ranging from limited additions to new flavors to amplified wellness credentials to entirely new food platforms,” Cahillane said.
In North America, recent innovations include new flavors of Pringles and Cheez-It, mini Club crackers and Town House FlipSides minis, a new popper format of Pop-Tarts and new bars, including soft baked oat bites under the NutriGrain Power-Fulls line and a Nut Butter & Oat RxBar.
“In the second half, we will be launching Pringles Mingles in North America, our first out-of-the-can launch in the United States in over 15 years. In late Q3, we will be introducing Cheez-it to Europe with a big launch in the UK supported by a full arsenal of sampling, social media and public relations and advertising. We have innovated in away-from-home channels as well, sometimes leveraging those channels to drive consumer awareness,” such as through a partnership with Taco Bell and the launch of Cheez-It Crunchwrap Supreme and big Cheez-It Tostada, Cahillane said.
“This heavy innovation calendar should bring us back to normal levels of net sales contribution from innovation,” he added, noting incremental sales from year-one innovation launches in 2024 should be above 2021 levels, as well as levels in 2022 and 2023 which were both down dramatically from 2021 due to global supply disruptions.
Kellanova is complementing the product launches with a “return to full commercial activity,” including the types of price promotions that ran pre-pandemic, which were mostly put on hold in recent years to counter supply chain challenges, Cahillane added.
Finally, the company is enjoying increased distribution from new shelf resets in the second quarter, he said.
Better-than-expected results raise full-year expectations
The combination of these efforts helped boost Kellanova North America’s organic net sales more than 1% in the second quarter, lapping last year’s revenue growth management actions and lack of merchandising activity, Cahillane said.
Organic net sales growth for the full company increased 4% in the quarter compared to last year and the adjusted operating profit grew by 16% year-over-year despite a double-digit increase in brand building, added CFO Amit Banati.
These better-than-expected results prompted the company to raise and tighten its full year guidance so that it now expects organic growth of about 3.5% for the full year – up from a previously expected 3%. It also expects earnings per share in a range of $3.65 to $3.75, which is 10 cents higher on each end than previously anticipated.
“For adjusted basis operating profit, we are raising and narrowing the range to $1.875 billion to $1.9 billion, again, primarily reflecting our first half delivery. We continue to expect margin expansion for the year, reaching above 35% for gross margin and about 14% for operating margin, though the year-on-year impacts moderate in second half, mainly because of what we are lapping then,” Banati said.
