By Mehr Bedi

(Reuters) – The nearly three month-long labor strike at Kellogg’s U.S. cereal plant is likely to reduce profit margins, already suffering from high costs and global supply problems.

Four U.S. plant that produces Froot Loops, Corn Flakes, and other cereal brands were affected by the strike, which began in October. The company was forced to reduce its production capacity, and it had to hire temporary employees.

“We think the strike will have a lasting impact for many more months and may require substantial investment to correct.” Barclays Andrew Lazar (LON) analyst stated in a memo

On Thursday, Kellogg will report on its fourth quarter results.

Most food manufacturers are experiencing supply disruptions and high inflation. But Kellogg is also facing the challenge of recovering momentum in its U.S. cereal businesses, Lazar stated.

THE CONTEXT

This strike cost the cereal maker nearly 20% and led to 1,400 employees demanding better pay and more benefits.

Alexia Howard from Bernstein said, “(Kellogg),” is the company that faces the greatest input cost pressures.

Margins for packaged food producers, Mondelez International Inc Conagra Brands Inc and (NASDAQ) have taken a significant hit from increasing transportation and packaging costs.

Kellogg profit margins over the course of the pandemic – https://graphics.reuters.com/KELLOGG-RESULTS/mopanyddbva/chart.png

THE FUNDAMENTALS

** Analysts project a quarterly gross profit margin of 31.5% for Kellogg, compared with 34.2% last year.

** Net income for the fourth quarter is estimated at $272.48 million, or $0.79 per share, higher than the $208 million, or $0.59 per share, reported last year.

Kellogg North America sales over the past two years – https://graphics.reuters.com/KELLOGG-RESULTS/jnvwelkxkvw/chart.png

WALL ST. SENTIMENT

** The current average analyst rating for Kellogg is “hold”, with a median price target of $67.

** The company’s shares have fallen about 4% this year, following a 3.5% rise in 2021.