European sales continued to fall
Kellogg’s (K) international business reported strong top-line growth, except in Europe where it continued to post sluggish sales. Kellogg’s sales in Europe fell 10% in 2Q17. The improved pricing and mix were more than offset by negative currency movement and lower volumes.
The region’s volumes were impacted by lower shipments due to the lingering impact of interruptions related to Pringles’ pricing and tough YoY (year-over-year) comparables. Besides, the company’s cereal shipments also declined, which reflected lower volumes and currency headwinds. In comparison, Kraft Heinz (KHC) also marked a YoY decline in sales in Europe due to currency headwinds.
Going forward, management expects Pringles to return to growth in 2H17. The United Kingdom’s cereal business is showing signs of improvement, which should help drive growth in the coming quarters. However, a slowdown in consumption and negative currency movements will likely restrict the top-line growth.
What drove Latin American sales?
The company’s sales in Latin America rose 14.8%, which reflects benefits of increased volumes from the Parati acquisition in Brazil and the improved pricing and mix. Kellogg continued to report strong sales in its Mexico business. However, unfavorable currency movements were still a drag. Soft industry trends and distributor transitions in the Caribbean and Central America sub-region impacted the volume growth rate during the quarter.
Kellogg’s sales rose 4.3% in the Asia-Pacific region due to higher shipments in Australia—the largest market in this segment. Meanwhile, improved pricing and mix and favorable currency movements more than offset the lower volumes. Sales grew in Australia, Japan, and Korea. In India, sales took a hit due to the implementation of the goods and services tax. Peers’ sales including Hershey (HSY) and Mondelēz (MDLZ) were also disrupted due to the implementation of the goods and services tax. During the quarter, Kellogg’s Pringles business witnessed high single-digit growth.