Shares in Kellogg slumped today (3 November) after the US cereal maker warned its 2011 profits would be lower than forecast.

The company said its annual internal operating profit, which excludes the impact of exchange rates, could fall by 2-4% after its third-quarter profits fell 16% to US$464m.

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In August, when Kellogg reported its half-year results, it said it saw its internal operating profit would be either flat or fall by up to 2%.

However, costs related to “supply-chain initiatives” accelerated in the third quarter of the year and profits were further hit by the reintroduction of “incentive compensation costs”, Kellogg said.

Net earnings fell 11% to $290m, or $0.80 per diluted share. Excluding the impact of foreign exchange, earnings per share declined 13%.

In the wake of the third-quarter results, Kellogg also outlined a new forecast for annual earnings per share. The company said it now expects reported earnings per share, which includes a $0.08 benefit from foreign exchange, of $3.35-3.41. In August, Kellogg forecast EPS of $3.42-3.49.

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The company, however, maintained its forecast for internal net sales to grow by 4-5% after a third quarter in which sales climbed 3%.

Internal sales increased in North America and internationally, although they fell 2% due to a “continuing difficult operating environment” in the UK, Kellogg said.

Reported net sales rose 5% to $3.3bn. President and CEO John Bryant said Kellogg was “continuing to rebuild its momentum”.

“The third quarter offered some compelling signs of improvement, particularly top-line growth and in-market performance,” he said. “Rebuilding momentum takes time, especially in challenging market environments. We increased the levels of investment in our supply chain in the quarter, a process we will continue. This multi-year program will improve the infrastructure and drive reliability and capability.”

Shares in Kellogg were down 7.5% at $49.99 at 11:59 ET.