Bryant upbeat as Kellogg earnings give ground

by Josh Sosland
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Within Kellogg North America, operating profits of the company’s Morning Foods business fell 4.3%.

BATTLE CREEK, MICH. – Adjusted earnings lost ground at Kellogg Co. in the third quarter ended Oct. 3 compared with year earlier results, while currency-neutral sales edged upward. Reported earnings and sales declined.

Comparable, currency-neutral earnings per share on the common stock were 96c in the third quarter, down 2.3% from the third quarter of 2014. Sales were up 1%, excluding the effects of currency moves. Sales were lifted by strength in Kellogg’s Latin America, Canada, U.S. Specialty Channel and Asia businesses.

John Bryant, Kellogg
John Bryant, Kellogg chairman and c.e.o.

“The company’s results for the third quarter continued the momentum that we saw earlier in the year,” said John Bryant, Kellogg chairman and chief executive officer. “Our developing and emerging-market businesses performed well, and the trends in our developed businesses continued to show improvement over last year. Our major productivity programs continue to progress well and we remain on track to meet our objectives for 2015 and 2016.”

Kellogg net income in the third quarter was $301 million, equal to 58c per share, down 11% from $340 million, or 63c, in the third quarter of 2014. Net sales were $3,329 million, down 9% from $3,639 million in the third quarter of 2014.

Within Kellogg North America, operating profits of the company’s Morning Foods business fell 4.3%, while Snacks were up 5% and Specialty Products gained 7%. North America Other, which includes Kashi, U.S. frozen and Canada, was down 36%.

Reported operating profit in North America fell 8%, down 3% on a currency-neutral basis. Kellogg attributed the decline to a resetting of incentive compensation, which carved eight percentage points from North American operating profit. Kellogg North America sales were down 2.7% in the third quarter, off 1.4% on a currency-neutral basis.

“The U.S. Morning Foods segment posted a currency-neutral comparable net sales decline of 2.6%,” the company said. “However, Kellogg-branded cereals gained share in the 12-week, publicly-available data. Currency-neutral comparable net sales in the U.S. Snacks segment decreased by 1.5%, although sequential performance improved. The U.S. Specialty Channels segment posted a 6.2% increase in currency-neutral comparable net sales in the quarter due to growth in both the Foodservice and Convenience channels.”

Sales for the North America Other segment fell 3.4% in currency-neutral terms.

Kellogg reaffirmed previous guidance for adjusted 2015 earnings per share to decline 2% to 4% from last year. For 2016, the company said it still expects to reach its long-term target adjusted net sales growth of 1% to 3% and operating profit growth of 4% to 6%.

“The company still expects to meet its long-term target for currency-neutral comparable operating profit growth even if current sales-growth trends continue and 2016’s currency-neutral comparable net sales growth is at the lower end of the company’s long-term target range,” Kellogg said. “This confidence is the result of good productivity programs, continued execution of Project K, and the anticipated implementation of zero-based budgeting. The company expects growth in currency-neutral comparable earnings per share of between 6% and 8%.”

In the nine months ended Oct. 3, Kellogg net income was $654 million, or $1.85 per share, down 2.9% from $925 million, or $2.58 per share. Sales were $10,383 million, down 6% from $11,066 million.

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