Project K helps fuel full-year rebound at Kellogg

by Eric Schroeder
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BATTLE CREEK, MICH. — Boosted by strong gains in its Pringles business and headway made in its Project K efficiency and effectiveness program, fiscal 2013 earnings and sales improved at Kellogg Co. In the year ended Dec. 28, 2013, net income was $1,807 million, equal to $4.98 per share on the common stock, up 88% from $961 million, or $2.68 per share, in fiscal 2012. Net sales increased to $14,792 million from $14,197 million.

Kellogg’s fiscal 2013 results included a benefit from mark-to-market accounting of $1.72 per share, costs of 42c per share associated with Project K and integration costs of approximately 13c per share related to the acquisition of Pringles. Excluding the items, Kellogg had earnings per share of $3.77 during the year.

For the fourth quarter ended Dec. 28, 2013, the company had income of $818 million, or $2.26 per share, which compared with a loss of $32 million in the same period a year ago. Sales for the quarter were $3,501 million, down from $3,563 million a year ago.

“Our Pringles business had an excellent year in 2013, although we continue to face challenges in some of our developed cereal businesses,” said John Bryant, president and chief executive officer. “We are executing our strategy, and we are also progressing very well with Project K, our four-year efficiency-and-effectiveness program. Our expectations are that, over time, Project K will begin to provide us the fuel we need to drive growth in our categories, and across our businesses, in the years to come.”

The U.S. Morning Foods segment posted an operating profit of $485 million during fiscal 2013, down 18% from $588 million during fiscal 2012. Sales for the segment were $3,465 million, down 2% from $3,533 million.

Within the U.S. Snacks segment, operating profit totaled $447 million, down 6% from $476 million during the previous year. The segment had sales of $3,534 million, up 4% from $3,400 million.

The U.S. Specialty segment had an operating profit of $265 million in fiscal 2013, up 10% from $241million during the previous year. The segment had sales of $1,202 million, up 7% from $1,121 million.

Kellogg incurred $208 million in costs related to the execution of Project K during fiscal 2013. Over the past several months the company has detailed several plant closings and expansion projects related to the program. The program is expected to result in the elimination of about 7% of Kellogg’s global workforce over the next four years and entails spending as much as $1.4 billion by the end of 2017 to relocate production lines and globally integrate internal business services.

On Feb. 5, Kellogg said it would close its snacks plant in Charlotte, N.C., and eliminate two production lines at its snacks plant in Cincinnati by the end of the year. In December, the company said it would close a ready-to-eat cereal plant in London, Ont., and a snacks plant in Charmhaven, Australia, by the end of 2014. Kellogg also plans to expand its cereals and snacks facility in Rayong, Thailand, by early 2015 and is building a new snacks plant in Bandar Estek, Negeri Sembilin, Malaysia.

Looking ahead to fiscal 2014, Kellogg said its full-year underlying internal operating profit is expected to increase at a rate between 0% and 2%, and internal sales growth are projected to increase by about 1%. Cash flow is expected to be in a range of between $1 billion and $1.1 billion, which includes all capital spending and the additional cash required by Project K.
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