Kellogg's Brand Investments Temper Profit -- Update
February 07 2019 - 1:56PM
Dow Jones News
By Annie Gasparro
Kellogg Co. said investments in new snacks and cereals are
denting profits but fueling a turnaround in sales.
The Battle Creek, Mich.-based maker of Special K, Pringles and
Pop-Tarts, is adding 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%, while 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 nearly 6% in midday trading
Thursday.
"It's difficult to turn around trends that have existed in the
marketplace for some time," Chief Executive Steve Cahillane said in
an interview.
Shares in Hain Celestial Inc., meanwhile, were down about 9%
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 to Kellogg and other companies
trying to appeal to customers looking for new and more healthful
products.
Hain hired Mark Schiller as CEO in November. Mr. Schiller said
Thursday that Hain had introduced too many items in pursuit of
sales growth. Unpopular products had to be discounted, he said,
hurting profit.
"These issues are largely self-inflicted," he said on a
conference call. "If we can put more resources against fewer things
that have higher potential, we will have a much greater
outcome."
Hain said sales in its last quarter were $584.2 million, short
of analysts' target for $612 million. The company also lowered its
earnings outlook for its fiscal year ending at the end of June.
Kellogg views 2019 as a turnaround year. It said it is spending
more on new brands and products like a digestive-health cereal
brand called Happy Inside and a Pop-Tarts cereal.
The company said its adjusted operating profit will be flat this
year, excluding currency fluctuations.
"We're not apologetic about this investment or the fact that it
is holding down profit for a couple more quarters," Mr. Cahillane
said. "We know that this investment is building a stronger
foundation for future growth."
Kellogg estimates its comparable sales will rise 1% to 2% this
year -- up from last year's flat results.
Kellogg said that in the U.S., brands such as Pringles, Cheez-It
and Rice Krispies Treats are growing. In the cereal aisle,
Kellogg's Kashi, Frosted Flakes and Froot Loops brands are selling
more, while others have struggled.
To boost sales, Kellogg in 2017 bought the clean-label protein
bar brand Rxbar for $600 million. Kellogg 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 $3.32
billion, a 4.2% rise from the year-ago period and generally in line
with analysts' estimate, according to FactSet. 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 13:41 ET (18:41 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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