Kellogg’s boss John Bryant said he was "very disappointed" by the recent Mini-Wheats recall in a call with analysts yesterday, but insisted that it was not a reflection of "systemic" supply chain problems.
Asked on the Q3 earnings conference call whether the $30m recall - prompted by the possible presence of metal fragments in some Mini-Wheats packs - was "part of a systemic issue", Bryant said it was a “unique” event.
He added: “We are very disappointed by this latest event. It was a failure in a piece of equipment. We've been using that sort of equipment for 20 years in this facility and it's the first time we've seen a failure like this.
“Our recent investments enabled us to identify the issue quickly, to respond to it and I think the company did a great job of very effectively and efficiently dealing with the situation.
“I think this [recall] is a unique issue… and I believe the investments we've made will help us mitigate and reduce the probability of these sorts of events in the future.”
We have turned the corner in our supply chain
Asked whether supply chain problems that had dogged the firm in recent years had now been resolved, Bryant said he was “confident that we have turned the corner in our supply chain over the last two years; that we have proactively identified and addressed the challenges.”
He added: “We've made significant investments… adding people back into the facilities, improving certain core processes within the facilities and we're seeing a much better performance out of our supply chain."
Pringles performed ahead of expectations
Meanwhile, the cost of the recall - $0.06 per share - was offset by a better-than-expected performance from Pringles, said Bryant.
“Pringles in North America posted organic sales growth of 10% in the third quarter. We're very pleased with the responsiveness of the business to our merchandising efforts.
“We're able to leverage some of our very strong relationships across some key customers and we achieved some placements that the business had not historically been able to achieve.”
Sales had also outpaced expectations in dollar stores, convenience stores, vending and foodservice channels, he said.
Sales of new Special K Popcorn Chips ‘mostly incremental’
As for new products, Kellogg “expects to have even more innovation at a total company level [next year] than what we had this year”, said Bryant.
Meanwhile, sales of new Special K Popcorn Chips “seem to be mostly incremental”, new Special K Flatbread Breakfast Sandwiches, were “off to a great start” and the re-launched Special K Protein had had “a fantastic start”, he revealed.
“Adults are seeking more protein. We're seeing that in our consumer tracking.”
We're very confident about the long-term prospects of the US cereal category
David Denholm, who heads up Kellogg’s morning foods division, said there had been volume declines in the US cereals category in the first two quarters driven by higher ticket prices, but said things had “improved sequentially as pricing moderated”.
Asked about the category's longer-term prospects, he said: “We see it as a low single-digit growth category. It really responds to brand building, innovation and nutrition.
“In terms of the absolute level of innovation in the category, it has been lower over the last year or two… [but] we expect there will be increased levels of innovation.”
'Softness' at Kashi and GoLean is temporary
Asked about Kashi and GoLean, he admitted there had been “some softness” during the quarter, but added: “We see that as temporary. We’ve got a 50% increase in the level of the cereal innovation behind Kashi.”
A significant improvement in the cereal business
Underlying operating results in North America were strong as Kellogg delivered “a significant improvement in the cereal business”, said Bryant.
Kellogg posted a 2.5% rise in net earnings to $296m and a 12.3% rise in reported sales to $3.7bn.
Internal sales - which exclude the recent acquisition of Pringles and currency translations - were up 2.8%, while internal operating profit dipped 4.9%.
Click here to read more on the Mini-Wheats recall from our sister site BakeryandSnacks.com.