Snacks up, but Kellogg’s bottom line weakened by cereal slump and cookie sale

By Gill Hyslop

- Last updated on GMT

Kellogg's cereal sales declined almost 2% in Q4. Pic: GettyImages/xamtiw
Kellogg's cereal sales declined almost 2% in Q4. Pic: GettyImages/xamtiw

Related tags Kellogg company financial results Breakfast cereals Snacks Keebler Ferrero

The breakfast cereal giant posted a 2.8% decline in Q4 2019 sales, hurt by falling cereal sales on top of offloading its Keebler cookie business and other assets to Nutella maker Ferrero.

The Special K and Corn Flakes maker reported its quarter earnings, ended December 28, 2019, dropped to $3.22bn from $3.32bn a year earlier.

On a comparable basis, sales rose about 3% from a year earlier in the quarter and more than 1% in the US and Canada, the company’s largest market.

In April, the Battle Creek, Michigan-based company offloaded its Keebler and its fruit-flavoured snacks, pie crusts and ice-cream cones businesses to Ferrero for $1.3bn.

“This divestiture improves our portfolio’s underlying growth rate and its profit margins while enabling our organisation to sharpen its focus on our core businesses,”​ said Steve Cahillane, Kellogg Company’s chairman and CEO, in a call to analysts.

“We also enhanced our financial flexibility by using the divestiture proceeds to pay down $1 billion of debt.”

The company also continued its investment in emerging markets.

“In addition to growing our existing businesses, we rapidly built up distribution of Kellogg noodles in Africa. We established local production of Pringles for the first time in Africa and Latin America as well as noodles in Egypt and South Africa. And we shifted production of cereal in Brazil to a new, more efficient facility.”

Drop in cereal sales

A major factor in the overall decline was falling cereal sales, declining almost 2% for the quarter, amid aggressive competition by fast-food chains offering alternate breakfast foods.

Kellogg reported better sales for its snack products like Cheez-It crackers, Pringles chips and Rice Krispies Treats, in North America, rising more than 4% on a comparable basis, following a ramp up on media spend and making snack-pack versions of classic products that appeal to on-the-go shoppers.

Sales of Kellogg’s frozen products, like MorningStar Farms alternative meats, rose almost 5% in the quarter on a comparable basis in North America.

Strong performance in Europe (up 3.1%) and Asia Pacific (up 8.3%) helped offset a sluggish growth in North America (up 1.3%) and the company posted a $145m profit for the quarter, versus an $84m loss a year earlier (due to a strong dollar, the costs of ongoing restructuring and preparations for Brexit.)

Excluding items, Kellogg earned 91 cents per share, beating analyst expectations of 85 cents per share, according to IBES data.

Building a solid foundation

Cahillane remained assured by the company’s ‘solid’ finish.

“2019 is now in the books, and we’re pleased with the progress we made,”​ he said.

“We stayed on strategy and on plan all year long, and we did what we said we would do right through Q4. And this was in spite of significant changes in investments made throughout the year, all aimed at building a solid foundation for steady, dependable financial delivery.

“The primary goal of 2019 was to return to organic net sales growth, and we did that.”

He added this is evidence the company’s Deploy for Growth strategy is working.

“We grew in all four quarters with full year growth in all four regions. We utilised revenue growth management to restore positive price realisation in all regions, and we improved our end market performance in key countries and categories.

“We plan to sustain this dependable performance in 2020, including a more balanced financial delivery.”

The company expects earnings per share, following adjustments, to decline up to 4% in the year, as the absence of the divested businesses offsets growth, but forecasts a 1% to 2% increase in comparable sales for 2020.

Kellogg shares fell 6.3% in premarket trading.

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