Morning foods wake up at Kellogg
by Eric Schroeder
BATTLE CREEK, MICH. — After sustaining a year-over-year sales decline of 1.7% in the first quarter of fiscal 2012 and only 1.2% growth in the second quarter, the U.S. Morning Foods & Kashi segment at The Kellogg Co. posted strong returns in the third quarter, as internal net sales increased 5.4%.
At $946 million, net sales for the segment, which includes U.S. cereal, Pop-Tarts, health and wellness, and Kashi businesses, were up from $939 million in the second quarter of fiscal 2012 and $941 million in the first quarter, and compared with $897 million in the third quarter of fiscal 2011.
In a Nov. 1 conference call with analysts, David Denholm, vice-president of Kellogg and president of U.S. Morning Foods & Kashi, said the recovery owes much of its success to Kellogg’s cereal business.
“The cereal category responds to brand building, innovation and nutrition, and we are seeing the benefits of our actions as we’ve progressed through the year,” Mr. Denholm said. “For cereal, the volume declines that we experienced early in the year, in response to previous price increases, certainly had the most significant impact in the first two quarters, although obviously the situation has improved sequentially as pricing moderated as we’ve moved through the year.”
Mr. Denholm said cereal posted net sales growth of 6% during the third quarter, driven by innovation, an increase in the level of brand building and an easier shipment comp. He said the company’s cereal innovation strategy involves having the right level of pressure each year, even as Kellogg works to improve the “stickiness” of its launches.
“Our share of innovation is now 50% of the category, with the next biggest competitor at 35%,” he said. “Our innovation has been performing well this year, and Krave, which we introduced in January, continues to hold almost a share point of the category. That represents a strong start for just two (stock-keeping units) and shows that both trial and repeat have been strong since introduction.
“In addition, we re-launched Special K Protein at mid-year to appeal to those consumers looking for increased protein in their diet. Although it’s early, we are pleased with the results so far as this innovation has also been well received, and trial rates have been strong.”
Heading into 2013, Kellogg has another strong lineup of cereal introductions scheduled, Mr. Denholm said. Planned product launches include Special K Chocolate Strawberry, Cinnamon Jacks and Mini-Wheats Crunch. Kashi innovation will focus on expanding the brand’s all-family offerings with the launch of Berry Fruitful, while two s.k.u.s of Bear Naked Fit also will be introduced.
Another area of strength at Kellogg in the third quarter was in Pop-Tarts, which posted a 6% gain in net sales while increasing its share position by 0.5 percentage points.
“This gain was driven by strong retail execution, brand building behind the ‘Crazy Good’ advertising campaign, and programs such as the summer concert tour,” Mr. Denholm said.
He said Pop-Tarts next big innovation will take place in January, when Kellogg rolls out two s.k.u.s of Oatmeal Delights.
For the quarter ended Sept. 29, Kellogg had income of $296 million, equal to 83c per share on the common stock, which compared with income of $290 million, or 81c per share, during the same quarter of the previous year. The most recent quarter included approximately 4c per share of integration costs related to the acquisition of Pringles, as well as 6c per share in costs associated related to last month’s recall of approximately 3.2 million boxes of Mini-Wheats in the United States, Canada and Mexico due to possible fragments of metal mesh that may have gotten into the products.
Sales for the quarter were $3,720 million, up 12% from $3,312 million.