Kellogg predicts flat sales as it works to revamp Special K

BATTLE CREEK, Mich. – Special K is still dragging down Kellogg’s sales, even as the cereal giant works to slash costs and boost other products to offset the fading popularity of one of its biggest brands.

The maker of Frosted Flakes, Eggos and Pringles has been saying for at least two years that it is trying retool Special K’s image to be less about dieting and weight loss, and the company again stressed on Thursday that it’s repositioning the brand to be more about “inner strength.”

But Special K, which includes cereals, snack bars and chips, saw declines in the second quarter as the company’s total sales fell 6.6 per cent. Special K cereals fell “a couple per cent” in the U.S. as the year-ago results benefited from the promotion of new items. Sales of Special K snack bars fell in the double-digit percentages, but the company said it’s introducing new products that feature more filling ingredients like nuts to help stabilize the declines.

“Special K has been a major drag,” CEO John Bryant noted during a conference call.

Cereal sales have been struggling in the U.S. overall as people increasingly reach for more on-the-go options in the morning. Kellogg said cereal sales in the U.S. fell about 1 per cent for the quarter are and expected to be flat for the year. Still, Bryant said that’s an improvement from past years. In addition to revamping its Special K and Kashi lines, Kellogg is trying to drum up excitement with the opening of a cereal cafe in New York City.

Kellogg also now expects total sales to be flat for the next couple of years after stripping out the effect of currency exchange rates. It said cost-cutting should improve margins, and it boosted its adjusted earnings guidance for the year.

The company said it’s focusing on brands like Cheez-It, which saw positive growth in the quarter. It noted that it is taking advantage of the growth in snacking habits with more single-serve and portable packaging. Bryant said he thinks Cheez-Its are doing well because they’re a stand-alone snack, not a “carrier cracker” that requires toppings or dip. They’re baked and thus a healthier alternative to fried salty snacks, he said.

For the quarter ended July 2, Kellogg earned $280 million, or 79 cents per share. Earnings adjusted for non-recurring costs came to 91 cents per share, a penny more than Wall Street expected. Total revenue declined to $3.27 billion in the period, falling short of the $3.35 billion analysts expected, according to Zacks Investment Research.

The Battle Creek, Michigan-based company expects full-year earnings in the range of $4.11 to $4.18 per share. That’s up from its previous guidance of $4 to $4.07 per share.

Shares of Kellogg Co. were up 2 per cent to $82.76 in midday trading. They have risen 12 per cent since the beginning of the year, while the Standard & Poor’s 500 index has risen nearly 6 per cent. The stock has risen 23 per cent in the last 12 months.


Keywords: Kellogg, Earnings Report