BATTLE CREEK, MICH. — “This is not a company that's sitting on its hands,” said Steven A. Cahillane, the new president and chief executive officer of Kellogg Co. He and outgoing leader John A. Bryant laid out initiatives for returning the business to top-line growth during an Oct. 31 earnings call.
In the latest quarter, Kellogg saw sequential improvement in net sales, helped by better results for Special K and Pringles. Kellogg’s cost savings initiatives, Project K and zero-based budgeting, continued to drive margin expansion, and the company’s transition out of a direct-store delivery model for its U.S. snacks business contributed to operating profit margin expansion in the quarter.
Net income in the third quarter ended Sept. 30 was $297 million, equal to 86c per share on the common stock, up from $292 million, or 83c per share, in the prior-year period.
Net sales rose to $3,273 million from $3,254 million. On a currency-neutral basis, net sales declined 1.4% in the quarter.
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| John Bryant, chairman of Kellogg |
“Special K’s declines moderated across categories and countries,” Mr. Bryant said. “Pringles regained its promotional footing in Europe, returning to growth there and globally. And North America Other returned to growth as Frozen gained momentum and Canada and Kashi continued to improve.”
During the quarter, the company announced its acquisition of Chicago Bar Co., L.L.C., maker of RXBAR clean label protein bars, for $600 million. The company sees the brand as a new platform for growth.
“This is a high-quality premium brand in a unique positioning at the intersection of simple, natural ingredients and high protein,” Mr. Bryant said. “It’s growing rapidly. Its sales will nearly quadruple in 2017, and somewhat rare in this space, it is already very profitable. RXBAR will operate independently, preserving what makes it special, including its talented people and entrepreneurial culture.
“Kellogg is here to help RXBAR in its next leg of growth via our substantial R.&D. resources and through our ability to expand its distribution.”
Another priority for Kellogg is stabilizing Special K, a declining business that has had a significant impact on total company net sales in recent years, Mr. Bryant said.
“Through renovation and innovation of our food and packaging, strengthening our food credentials and through a new inner strength positioning, which media only just went on air beginning of Q3, we have seen signs of progress,” he said. “Specifically, we have seen a clear moderation in net sales decline in cereal globally, and we have cut consumption and share declines in half in several markets ranging from the U.S. to Canada to Spain and, even more dramatically, in markets like the U.K. and Mexico.”
For the year ahead, the company is planning renovation and “transformational” innovation in core cereal brands, including Frosted Flakes, Froot Loops, Mini-Wheats, Raisin Bran and Special K, said Paul T. Norman, senior vice-president and president of Kellogg North America.
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| Paul Norman, senior vice-president and president of Kellogg North America |
“This is bigger innovation activity than this year,” Mr. Norman said. “We’ll also try some new things that are new to the category. These will lean into health and wellness and into convenience, and you will hear more about them in the months to come.”
Contemporizing the portfolio to align with today’s consumer trends on a brand-by-brand basis is a key part of Kellogg’s strategy.
“I’ve spoken before about how the category has always been driven over time actually through nutrition, whether it’s fortification back in the ‘50s; fiber, oat bran in the ‘70s and ‘80s; and then for a long while here, low-calorie, low-fat drove the Special K brand in particular and the category for years; now, I believe, gut health and science is coming back to nutrition and nutrition in the cereal category,” Mr. Norman said. “We’re well placed as a category to actually find tailwinds in nutrition in the months and years to come. It’s good for cereal, and it’s good for our emphasis on health and wellness…
“The critical thing though is finding great commercial ideas, renovation and innovation that can bring to life those trends in unique ways for our brands, where our portfolio and our category is uniquely placed to do that. It’s incumbent on us to do it. So that’s really where our focus is.”
With more than a third of cereal consumption in the United States occurring outside of the breakfast occasion, Kellogg is marketing its morning foods portfolio for around-the-clock eating.
“Thirty-five per cent, 36% of the cereal consumption in the U.S. today happens outside of the breakfast occasion,” Mr. Norman said. “That trend is only increasing and will only continue to increase as you think of demographics and age cohorts going forward here. And so we are agnostic to what time of day we communicate the benefits of our foods, and we’ll communicate to everybody wherever they are throughout the day these benefits. We’ve had great success with some of our kid brands against millennials in certain day parts like the evening, and we will continue to drive our portfolio where it makes sense to fit people’s days.”
