Kellogg's 1st-quarter profit falls 2 percent on higher costs

Kellogg Co. reported Wednesday that its first-quarter profit dipped 2 percent, despite recent price increases intended to offset higher costs.

The Battle Creek-based cereal and snack maker said net earnings fell to $315 million, or 81 cents per share, compared with $321 million, or 80 cents per share, during the first three months of last year. Earnings per share increased despite the decline in profit due to the completion of the company's $650 million share-repurchase program.

Kellogg, whose brands include Special K cereal, Pop-Tarts toaster pastries, Keebler cookies and crackers and Eggo frozen waffles, reported a 10 percent increase in revenue, to $3.3 billion from $3 billion.

The results beat the expectations of analysts polled by Thomson Financial, who had predicted a profit of 76 cents per share on sales of $3.2 billion.

North American sales of both cereals and snacks grew 4 percent, matching Kellogg's performance during the first quarter of 2007. International sales increased 6 percent, led by a 7 percent jump in Latin America.

"We're pleased with our broad-based growth across our business around the world. We executed on every level, growing sales, operating profit and earnings per share despite the impact of higher inflation and a higher tax rate," David Mackay, Kellogg's president and chief executive, said during a teleconference with industry analysts.

"Focusing on sustainable and dependable performance is even more important than the current economic environment of volatile energy and commodity markets."

The company reaffirmed that it expected full-year 2008 earnings in a range of $2.92 to $2.97 per share. Analysts have predicted annual earnings in a range of $2.95 to $3.13 per share.

"The long-term growth of the business will continue to be driven by our commitment to investing in great ideas and keeping consumers engaged and aware of our brands, and their unique benefits," Mackay said.

He said Kellogg plans to increase its quarterly dividend by 10 percent, or 3 cents per share, beginning in the third quarter.

Shares fell 81 cents to close at $51.17 Wednesday.