Food Business News - February 23, 2016 - 12

Snacks 'area of weakness' for Kellogg

BATTLE CREEK, MICH. - A
priority for Kellogg Co. in the
year ahead is to stabilize its
snacks business, admittedly
"an area of weakness" for the
Battle Creek-based company,
said John Bryant, chairman
and chief executive officer.
"We've had a disappointing
couple of years in U.S.
Snacks," Mr. Bryant said
during a Feb. 10 earnings call
with financial analysts. "We
have had a headwind from
Special K in snacks over the
last couple of years. You've
seen that come through in
our cracker business, with
Special K Cracker
Chips; it has come
too in our wholesome
snacks business with
Special K bars.
"The good news is

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FOODBUSINESS NEWS

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where we have renovated
those foods, similar to what
we've done in cereal, we're
seeing the business stabilize."
For the fiscal year ended Jan.
2, Kellogg net income was $614
million, equal to $1.74 per share
on the common stock, down
3% from $632 million, or $1.76,
in the prior year. Net sales were
$13,525 million, down 7% from
$14,580 million the year before.
Full-year currency-neutral comparable earnings were $3.81
per share, which was in line
with the prior year, and
currency-neutral net sales
increased by 1.2%.
With a new leadership
team in place, Kellogg is
confident in returning the
snacks business to modest
top-line growth in 2016. The
company noted sequential
improvement in consumption
in its crackers, cookies and
wholesome snacks businesses
in the recent quarter.
"We have had strong growth
in Cheez-It over the last several
years," Mr. Bryant said. "We're
seeing good growth in Pringles;
we're seeing good growth
in Rice Krispy Treats and
wholesome snacks. Our cookie
business is stable over the last
couple quarters, so actually
we've seen better
trends within the
business.
"So as we go

forward into 2016, we expect
to return this business to topline growth, although modest.
And we absolutely expect to
return the business to bottomline growth."
Kellogg's snacks strategy
includes product innovation,
expanded distribution and
stronger in-store execution.
The company is set to debut
new Nutri-Grain bars and a
Special K Chewy Nut Bar in
the year ahead.
"Our wholesome snacks
piece is more about ensuring
all of our foods are on trend,"
Mr. Bryant said. "There is work
that has been done there, we
have done that work, we have
seen better results and there's
still more to do."
Meanwhile, Kellogg's cereal
business posted solid growth
in the quarter, led by significant
improvement in Special K
consumption.
"This was driven primarily
by changes to messaging and
the renovation work we did
last year on Red Berries," Mr.
Bryant said. "And the good
growth we saw all year on
Raisin Bran was the result
of the introduction of Raisin
Bran with cranberries, which
should have good results for
the entire franchise."
The
company
credits
strategic
investments
in
brand building and product
development for the boost in
breakfast products.
"We're going to continue
to drive sales in 2016 with the
introduction of new products
like Special K Nourish... a
cereal with positive nutrition
and ingredients the consumer
can see, and the food includes
fruits, nuts and on-trend
grains like quinoa," Mr.
Bryant said. "We have a range
of new products launching
in 2016; some are on-trend
foods such as Special K
Nourish and Harvest Delights
Mini-Wheats. Some are fun
additions, including Smorz,
Disney Dory-themed cereal
and Orange Crush Pop-Tarts."
For the fourth quarter,

Kellogg recorded a loss of
$41 million, which compared
with a loss of $293 million
in the fourth quarter of
2014. Adjusted comparable
earnings were 79c per share,
down 6% from comparable
e.p.s. in the fourth quarter of
2014, the company said.
Net sales for the quarter were
$3,142 million, down nearly
11% from year-ago sales of
$3,514 million. Fourth-quarter
currency-neutral comparable
net sales increased by 4.2%.
Within
Kellogg
North
America, operating profit for
the company's U.S. Morning
Foods business decreased
1% for the year and increased
5% for the quarter, while U.S.
Snacks profit was down 5.8%
for the year and nearly 13% for
the quarter, and U.S. Specialty
Channels profit declined 2.3%
for the year and gained 5.3%
for the quarter. Operating
profit for North America
Other, which includes Kashi,
U.S. frozen and Canada, was
down 40% for the year and
45% for the quarter.
The U.S. Morning Foods
segment's comparable sales
declined 1.6% in the full year
and increased 1.5% in the fourth
quarter, reflecting improving
trends in the cereal business.
Comparable sales for the U.S.
Snacks segment declined 1.6%
for the full year and 1.9% for the
quarter; however, consumption
improved
sequentially
in
each of the categories in the
segment, the company said.
Kellogg North America
comparable net sales on a
currency-neutral basis were
down 1.6% for the year and
0.4% for the quarter.
Kellogg
reaffirmed
its
previous
guidance
for
adjusted 2016 earnings per
share growth of 6% to 8%, net
sales growth of 1% to 3%, and
operating profit growth of
4% to 6%, all on a currencyneutral basis. The company
expects to generate a total of
$200 million in savings in 2016
through its Project K and zerobased budgeting programs. FBN

February 23, 2016
Food Business News - February 23, 2016

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