Kelloggs cautioned on Thursday that a prolonged strike at its cereal factories in the United States and a global supply chain constraint might harm full-year profitability, even as the packaged foods producer upped its projection for organic net sales.
Since early October, over 1,400 Kellogg's cereal manufacturing employees have been on strike, demanding amended contracts.
Kellogg said on Wednesday that its cereal plant workers union had rejected a revised offer, which the U.S. packaged foods manufacturer referred to as its "last best final offer," extending the months-long contract negotiations.
In the earnings statement issued on Thursday, Chief Executive Officer Steve Cahillane stated that the company was performing well in an "extremely difficult operating environment, marked by economy-wide bottlenecks and shortages and high-cost inflation," but warned of additional challenges in the coming months.
"These business conditions do not get any easier in the fourth quarter, especially with the added challenge of a current labor disruption," Cahillane said.
The company, like its competitors Kraft Heinz and Conagra Brands, has been grappling with increased freight and raw material costs.
Kellogg now forecasts organic net sales growth for fiscal 2021, excluding the impact of the strike, to be between 2% and 3%, up from its previous prediction of 0% to 1%. However, it warned that due to current supply and labor issues, adjusted profit growth could be at the low end of its target range of 1% to 2%.
According to analyst Robert Moskow, the company's earnings outlook "might get worse if the strike drags on."
Net revenues for the Froot Loops manufacturer increased to $3.62 billion in the third quarter ended Oct. 2 from $3.43 billion the previous year. Analysts predicted sales of $3.54 billion on average.
Excluding adjustments, Kellogg earned $1.09 per share, exceeding analyst projections of 93 cents per share.