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Frozen sales surge at Kellogg but Kashi still underperforming in the cereals aisle

By Elaine WATSON , 05-Feb-2013
Last updated on 06-Feb-2013 at 09:33 GMT

Kellogg is significantly outpacing the competition in the frozen food aisles, posting a 12.8% surge in sales the fourth quarter of 2012 and a 10.8% rise in the full year, revealed bosses on an earnings call this morning.

However, while Kashi is doing well in the frozen food cabinet,its performance in the cereal aisles remains disappointing, they admitted.

Frozen food is one of Kellogg’s fastest-growing businesses

US frozen food president Michael Allen said strong growth from Eggo waffles, Morningstar Farms veggie foods and new Kashi frozen meals and pizzas had helped Kellogg grow “at almost twice the rate of our nearest competitor” during the quarter.

He said: “Many of you may not realize that the Frozen Foods business is one of Kellogg's fastest growing.… and I’m very optimistic about the great line-up of new products that we have for 2013.

“Eggo’s share of the waffle category is now at an all-time high and we’ve managed to achieve that with fewer SKUs (stock keeping units). In frozen, we posted a sales compound annual growth rate of more than 8% over the last 9 years, which is fantastic performance, and we've seen even faster growth more recently."

Strong brands in attractive, growing categories

Kellogg CEO John Bryant: 'We want to see Kashi moving in the right direction over the next six months'

He added: “Our new frozen Special K frozen flatbread breakfast sandwiches have had great retail acceptance and strong velocity.”

New Special K Red Berry waffles, Eggo Drizzlers (waffles with lower-sugar fruit toppings) and MorningStar Farms Mediterranean Chickpea veggie burgers, are also expected to perform well in 2013, he predicted.

According to Nielsen data, US retail sales of natural and organic frozen meals (in which Kellogg has the #2 position); frozen veggie foods (in which Kellogg is #1); and frozen breakfast (in which Kellogg is also #1); were up 10.3%, 7.3% and 3.4% respectively in 2012, he said.

“This business is anchored by strong brands in attractive, growing categories.”

We want to see Kashi moving in the right direction over the next six months

But while Kashi is doing well in frozen,Kellogg’s CEO John Bryant admitted that its performance in the cereal aisles had not met expectations.

He added: “Kashi is a great brand. It's had tremendous growth over the years and it's still growing where we've extended it in areas like frozen and wholesome snacks. However, in cereal, we do have a couple of challenges.”

Specifically, some recent innovations had not proved as strong as bosses had hoped, he said: "Some of the innovation in recent years has not been as strong as our core Kashi SKUs."

Meanwhile some brand building efforts had “moved away from the core proposition”, with approaches proving more tactical than strategic, he said. "Some of the brand building has moved away from the core benefit of Kashi so we have an opportunity to sharpen our focus a little bit more.

"So we're not happy with the performance of our Kashi business."

However, work is progressing to turn things around, he said. “We want to see Kashi moving in the right direction over the next six months.”

Pringles sales in North America up 5%

As for snacks, Bryant said he was very encouraged by sales of new FiberPlus and Special K protein bars, while Q4 sales of Pringles were up 5% in North America.  

Q4 results

Q4 net sales rose 18.2% to $3.6bn, while internal net sales, which exclude the effects of foreign currency translation, acquisitions, divestitures and integration costs, rose 5.3%. 

Full-year 2012 net sales rose 7.6% to $14.2bn, while internal net sales rose 2.5%. 

However, a new accounting method for its pensions affected results. Under the new method, Kellogg lost $32m, or 9 cents per share, in Q4, compared with a loss of $195m, or 54 cents per share, for last year's revised results.

Not including one-time items related to its pension adjustments and the Pringles acquisition, underlying earnings were 67 cents per share, a penny above analysts' expectations.

Based in Battle Creek, Michigan, Kellogg has a brand stable including Cheez-It, Coco Pops, Corn Flakes, Eggo, Frosted Flakes, Kashi, Keebler, Kellogg's, Mini-Wheats, Pop-Tarts, Pringles, Rice Krispies and Special K.

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