As anyone who has been to a grocery store lately knows, food prices are on the rise, and that's affecting profits at food giant Kellogg Company (K). Net sales during the company's 2011 first quarter rose 5 percent to $3.5 billion. Internal net sales, which exclude the effects of foreign currency translation, rose 3 percent over the same period.

Higher input costs and a double-digit increase in developing the brand ate into earnings, the company says. First quarter 2011 operating profit came to $572 million, a decline of 10 percent on a reported basis and 12 percent on an internal basis.

It's not all bad news. The company has adjusted prices to account for higher input costs, which will benefit future earnings. Plus Kellogg reported very strong profits during the first quarter of 2010, which made posting earnings gains a tough task.

"We had a solid start to 2011, exceeding our internal expectations for the quarter. Our top-line growth reflects our increased emphasis on innovation, investment in brand building and net price realization," says John Bryant, company president and chief executive officer.

"Our momentum is building, as demonstrated by strong share gains in most of our U.S. categories."

Conservative targets

Kellogg is confident business will be strong this year and is raising its full-year internal net sales guidance to approximately 4 percent to offset higher input costs. The company is sticking with earnings targets.

Analysts say the company is being conservative, which makes them bullish on Kellogg, especially considering how 2010 results were not too strong.

Stifel Nicolaus, for instance, recently reiterated its buy rating on the shares.