Kellogg's Brand Investments Temper Profit
February 07 2019 - 12:33PM
Dow Jones News
By Annie Gasparro
Kellogg Co. said investments in new snacks and cereals are
improving sales at the expense of profit.
The Battle Creek, Mich.-based maker of Special K, Pringles and
Pop-Tarts, is making more single-serve snacks, developing recipes
for healthier cereals and ramping up marketing.
That damped Kellogg's earnings in the fourth quarter. The
company said Thursday that its comparable sales in North America
fell 2%. Adjusted operating profit declined by about 13%, excluding
foreign-exchange effects related to its Canada business.
Kellogg's shares, which have fared better than those of its
peers in the past year, fell more than 5% in recent trading on
Thursday.
Shares in Hain Celestial Inc., meanwhile, also fell Thursday
after the maker of natural and organic snacks and household
products reported an unexpected loss in its latest quarter.
Hain long dominated that trendier area of the market but has
lost ground over the past few years as competition from Kellogg and
others intensified.
Hain said sales in its last quarter were $584.2 million, short
of analysts' target for $612 million. The company's projections for
earnings this year also fell short of expectations.
Kellogg said its expenses will drop later this year as it begins
making new single-serve snacks in its own factories. Kellogg also
expects to offset rising trucking costs, which hit record highs
last year, with productivity savings. The company said its adjusted
operating profit will be flat this year, excluding currency
fluctuations.
Kellogg has been working on raising the average prices of its
products through new flavor and size varieties that generate higher
profit margins. It expects that to help its comparable sales rise
1% to 2% this year -- a marked improvement from last year's flat
results.
Kellogg said some of its brands, such as Pringles, Cheez-It and
Rice Krispies Treats, are growing while cereal consumption
continues to struggle in the U.S. But some of its brands like
Frosted Flakes and Froot Loops are outperforming the rest of the
cereal aisle.
To boost sales, Kellogg branched out in 2017 and bought the
clean-label protein bar brand Rxbar for $600 million.
It is also considering selling its Keebler cookie business so it
can focus on other brands that are more central to its
strategy.
For the fourth quarter, Kellogg reported revenue of $3.317
billion, a 4.2% rise from the year-ago period and just shy of
analysts' $3.3199 estimate. Earnings per share, adjusted to exclude
one-time charges, fell 2.2% to 91 cents, topping analysts' 88-cent
target.
Write to Annie Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
February 07, 2019 12:18 ET (17:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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