Kellogg beats in Q2, navigates inflationary environment

Kellogg (NYSE: K), arch competitor of General Mills (NYSE: GIS), issued its Q2 missive to investors on Thursday, and from my viewpoint, things look pretty good at the famous breakfast icon(see more earnings news). Kellogg finds itself in a similar situation to Kraft (NYSE: KFT). The company has had to raise prices to keep up with input costs, and it's doing reasonably well in passing those increases along to the consumers who love its brands.

Net sales rose 11% to $3.3 billion. Earnings per diluted share were $0.82, which was one penny higher than analyst expectations, as cited in this Before the Bell piece. Considering that Kellogg was fighting inflation and significantly increasing its marketing spend to keep its product line humming, the 9% expansion in the bottom line can be looked upon in a positive light. Of course, the weak dollar did help the top line. Stripping out currency effects and acquisitions, the revenue growth was closer to 6%. Still, Kellogg is holding up as best it can, and although free cash flow for the six-month period was down 10%, there still were enough funds to service the dividend obligation.

Kellogg has reduced costs, raised its guidance, and initiated a new share-repurchase scheme worth $500 million that will begin sometime toward the latter part of the year. The cereal king thinks it will now do somewhere between $2.95 and $3.00 per share in terms of earnings. Those thinking of adding Kellogg to a long-term portfolio might benefit from waiting for a higher yield, maybe in the 3% area, considering how volatile the markets are.

Disclosure: I don't own any company mentioned; positions can change at any time.