Brexit and soft breakfast and snack sales see Kellogg’s sales slip below expectations

By Gill Hyslop contact

- Last updated on GMT

Brexit and soft breakfast sales have hurt Kellogg's Q4 bottom line. Pic: ©GettyImages/Luis Diaz Devesa
Brexit and soft breakfast sales have hurt Kellogg's Q4 bottom line. Pic: ©GettyImages/Luis Diaz Devesa

Related tags: Brexit, Breakfast cereal category, Operating profit, Sales growth

The Michigan-based cereal giant reported a fourth quarter loss of $84m – compared with a profit of $417m a year earlier – due to the looming Brexit and a ‘softness’ in its key US snacks and morning foods categories.

CEO Steven Cahillane told the media that Brexit is ‘probably the most uncertain geopolitical issue that companies are facing right now’, which is impacting consumer sentiment.

He added Kellogg’s has been investing heavily to mitigate the potential damage when Britain leaves the European Union on March 29.

However, he added the Special K and Rice Krispies-maker is making headway toward its goal to boost revenue, despite the lingering weakness in its key US category of morning foods.

To drive cereal sales, Kellogg’s has been developing recipes for healthier cereals and ramping up on marketing.

“Our brand building investment was increased at a high single digit rate in 2018 and it was invested behind better commercial ideas at higher ROIs. We are not just spending. We are revitalizing brands and even launching some new ones,”​ said Cahillane, noting this was producing results in the form of better net sales and consumption performance around the world.

“This wasn't easy and it wasn't inexpensive. As we've said before, the heaviest lifting, the heaviest investment is when you're trying to reverse a trend. For us this was a multiyear trend in declining organic net sales.”

Great strides

“2018 was an important year for us, in which we pivoted to growth after successfully reducing our cost structure in recent years,” ​said Cahillane.

“We launched Deploy for Growth, a strategy that gives us clarity on priorities, and has us taking decisive actions to return our company to sustainable top-line growth.

“We still have a lot of work to do, but we have made great strides toward reshaping our portfolio toward growth, revitalising key brands, and developing capabilities. Our stabilization of a declining net sales trend and our improved in-market performance around the world are clear signs of this progress. This investment and progress will be evident again in 2019, setting us on a path for sustainable, profitable growth over time.”

The company expects expenses to drop later this year as it begins making new single-serve snacks in its own factories. It also expects to offset rising trucking costs, which hit record highs last year, with productivity savings.

The figures

For the quarter, Kellogg’s reported revenue of $3.32bn – a 4.2% rise from the year-ago period and just shy of analysts’ $3.31bn estimate – helped by acquisitions like the 2017 purchase of RXBAR.

It also reported that some of its brands, such as Pringles, Cheez-It and Rice Krispies Treats, are growing.

Operating profit was down, to $326m.

For the year, Kellogg’s reported revenue of $13.55bn, up from $12.85bn the year prior – a 5.4% YOY increase – or $3.83 per share.

Operating profit rose almost 23% to reach $1.71bn, or $3.83 per share.

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