There is no doubt that Kellogg (NYSE: K) faces a very difficult environment. The cost of grains has taken a bite out of profits, and as anyone who's dug into a bowl of Corn Flakes or Raisin Bran can tell you, there's a lot of grain in there. Commodity cost inflation has been on the minds of several of my Foolish colleagues lately. And after seeing results from fellow consumer goods manufacturers including Campbell (NYSE: CPB), General Mills (NYSE: GIS), and Kraft (NYSE: KFT), we know this trend is by no means limited to Kellogg.

I think Kellogg delivered an excellent quarter against this backdrop. To see this, investors have to look beyond the fact that earnings per share barely grew from $0.80 a year ago to $0.81 this quarter and that net income declined. Growth in net income and earnings per share often obscure a company's true operating performance, and this is the case in Kellogg's first quarter.

In 2007, the company recognized a one-time tax benefit which inflated its numbers. Looking above the bottom line, operating profit (which more accurately reflects the company's relative performance in this case) increased 9.2%. That's impressive given current commodity and energy cost pressures. Revenue growth of 10% looks impressive at first glance, but is less so when considering that about half of the increase was attributable to the weak U.S. dollar.

Even though the company beat earnings estimates of $0.76 and raised its dividend 10%, it wasn't enough to notably budge the share price. Maybe investors were looking for the company to boost annual guidance in the wake of stronger-than-expected results, but management reiterated that 2008 EPS will come in between $2.92 and $2.97, which is well below the upper end of consensus estimates. Kellogg is notorious for sandbagging earnings, and I am a big fan of underpromising and overdelivering.

Investors might want to nibble on a few Kellogg shares, but might want to wait for more stability in commodity costs before grabbing a full two scoops' worth. Kellogg is a great business, and the ready-to-eat cereal market has bowlfuls of room to expand on an international basis. Lessons learned in lean times can often lead to fat profits when conditions improve, which could pay off for Kellogg shareholders over the next couple of years.

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Fool contributor Matthew Reilly does not own any positions in the above companies. Tony the Tiger thinks the Fool's disclosure policy is Grrrrrrrrrrrrrrrreat.