US cereal giant Kellogg has recorded an increase in full-year profits, boosted by lower expenses, and despite a drop in sales.

For the year ended 1 January, the company earned US$1.24bn, an increase of 4% on the 2009 period. Operating profit dropped slightly to $1.99bn from $2bn in the prior-year.

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Full-year sales declined by 1% to $12.40bn on both a reported and internal basis.

In North America, full-year reported net sales for 2010 slid 1% to $8.4bn, while the firm’s international division posted a 2% decline in reported net sales to $4bn.

“While 2010 had its challenges, we are taking steps to position the company for improved and long-term success,” John Bryant, Kellogg’s president and CEO, said. “Kellogg is a strong company with successful brands in attractive markets. We expect 2011 to continue to be a difficult operating environment, but we are confident that with the successful execution of our strategy we can achieve our 2011 goals and deliver long-term sustainable growth.”

In the fourth quarter, profits increased to $185m from $176m a year earlier, while operating profits dropped 7% to $329m.

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Sales in the quarter dropped 1% to $2.86m. The manufacturer attributed the decrease primarily due to the “continued competitive trends in the cereal category”.

Kellogg reaffirmed its 2011 guidance of currency-neutral full-year earnings per share growth in the low single-digit range. Assuming no foreign exchange impact, this implies earnings per share of $3.33 to $3.40. The company updated its internal net sales growth guidance from 3% to 4%.

Click here to view the full earnings release and click here for John Bryant’s comments on the outlook for Europe, the prospects for the US and innovation in cereal.