Kellogg refocusing on efficiency to improve earnings

by Keith Nunes
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BATTLE CREEK, MICH. – The Kellogg Co. is initiating Project K, a four-year efficiency program designed to help the company drive earnings growth. The company made the announcement in conjunction with the release of its third quarter earnings.

For the quarter ended Sept. 28, Kellogg recorded net income of $326 million, equal to 90c per share on the common stock, which was flat compared to the same period of the previous year when the company earned $318 million, equal to 89c per share. Sales for the quarter of $3,716 million were also flat compared to the third quarter of fiscal 2012 when sales were $3,720 million.

Kellogg said it anticipates Project K will alter the company’s infrastructure and reduce its global workforce by 7%. The program is projected to cost between $1.2 billion and $1.4 billion. Cash savings are expected to reach an annual run-rate of between $425 million and $475 million in 2018.

“We are excited by the potential and opportunities we see for growth in the categories in which we operate,” said John Bryant, president and chief executive officer. “As a result, we are making the difficult decisions necessary to address structural cost-saving opportunities, which will enable us to increase investment in our core markets and in opportunities for future growth.”

Kellogg said in conjunction with Project K it also will increase investment in its core markets, developing and emerging markets, and in its efforts to create global category teams, which it expects will reduce redundancy throughout the organization.

“The marketplace is constantly changing and evolving, and we must adapt,” Mr. Bryant said. “We remain committed to our core businesses and have great initiatives planned that we believe will drive revenue growth and increasing profitability in the years to come.”

Kellogg also updated its full-year earnings-per-share guidance and said it expects e.p.s. to fall in the range of $3.75 to $3.84, excluding integration costs and costs related to Project K.

For the first nine months of fiscal 2013, Kellogg earned $989 million, equal to $2.72 per share, which was a slight decline compared to the previous year when the company earned $993 million, equal to $2.78 per share. Sales for the first nine months were $11,291 million, a slight increase to the first nine months of fiscal 2012 when sales were $10,634 million.
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