We are battling inflation like everybody else is

One can’t argue that corporate America is dealing with an inflationary outbreak across many commodities as the economy is jolted back to life from the worst of the pandemic. The only questions now for executives on the inflation front is: Will it be transitory (like the Federal Reserve says) and how could pricing pressure be offset so as to not hammer profits?

“Obviously the future will unfold, but I suspect based on what we are seeing that there is clearly a one-time step up reset of the base. Is there evidence of ongoing inflation after that, a new inflationary cycle? I haven’t seen the strong evidence that suggests that inflation is here to stay. But I have seen enough evidence to suggest that there are a lot of input costs that have gone up fairly substantially in a short period of time, which ultimately means a reset,” Kellogg Chairman and CEO Steven Cahillane said on Yahoo Finance Live. “What happens after that remains to be seen, but I do think that the one-time step up is real.”  

Cahillane said Kellogg has seen inflation across the board, notably in transport and ocean freight. The company is looking to improve productivity as a way to defend its profit margins, and is hesitant to raise prices too much on value conscious cereal and snack buyers. 

“We do want to remain as affordable as possible. We are quite affordable for our consumers, and we keep our consumers at the heart and soul of everything that we try to do. It starts with the best possible food brought to you in exciting ways, but in affordable ways as well. So we are battling the inflation like everybody else is, but it is clearly here in ways that hasn’t been in quite a number of years,” Cahillane explained.

Despite the tight supplies of its popular cereals and rising inflation, Kellogg had a solid first quarter as at-home consumption of packaged food remained elevated. Organic net sales rose 4.2% from a year ago, while adjusted operating profits gained 13.3%. Sales were paced by brands such as Pringles, Cheez-Its and Eggo waffles.

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The company also raised its full-year earnings growth guidance last week to a range of 1% to 2% from 1% previously.

Kellogg shares are up about 6% year-to-date, according to Yahoo Finance Plus data, about in line with the performance of cereal and snack rival General Mills. 

Wall Street generally praised Kellogg for its first quarter performance, but voiced some concern on margins moving forward as inflation heats up. 

“We were impressed by Kellogg’s 1Q and by management’s optimism but we remain on the sideline in the face of decade-high inflation and what could be some ephemerality to 1Q’s volume growth,” said JP Morgan analyst Ken Goldman in a research note to clients.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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