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Kellogg cereal woes: Q4 net sales dip amid full year profits

By Kacey Culliney+

Last updated on 07-Feb-2014 at 13:21 GMT2014-02-07T13:21:42Z

Continued decline in cereal consumption hit Kellogg in 2013 and the brand faced increased competition from other breakfast items
Continued decline in cereal consumption hit Kellogg in 2013 and the brand faced increased competition from other breakfast items

The Kellogg Company has reported lower-than-expected fourth quarter sales due to continued weakness in cereal but its president and CEO says the company can still win at the breakfast occasion. 

Kellogg reported net sales of $3.5bn for Q4 in fiscal 2013, down 1.7% on Q4 2012 amid full year sales of $14.8bn, up 4.2% on the previous year.

Sales of US Morning Foods dropped 4%, pulled down by continued lower cereal consumption. Snacks posted an overall improvement on 2012, but this was predominantly thanks to the recently acquired Pringles brand and other Kellogg snack brands remained flat.

John A. Bryant, president and CEO of Kellogg, said the company had faced a, “difficult environment” in 2013 in developed regions, and that these difficulties were expected to continue in 2014.

The CEO said there were opportunities to drive relevance in the cereal category and the chance to better execute snacks in-store - a sector that had been disappointing for fiscal 2013.

Cereal woes?

Bryant said consumption of cereal in the US was lower than expected but that Kellogg wasn’t missing out to other cereal brands, rather other breakfast options like eggs, toast and yogurt.

“We’re not losing people to any one category in particular. And when we ask people why they’re leaving, there’s no one negative item, and in fact, there’s no real negative item. In fact, when we talk to consumers about why they’re eating less cereal, we call it an unconscious migration because the answer we get is generally ‘I didn’t realize I was eating less cereal in the week’.” 

Cereal is facing competition from broader breakfast items like eggs, toast and yogurt, says Kellogg CEO

Kellogg must communicate the benefits of cereal consumption better, Bryant said, and the company will use its master brand Kellogg to do that. 

“You’ll see more of that category-building activity as we go through the middle of this year in some of these major cereal markets. And we believe we can absolutely win with cereal at the breakfast occasion.”

Pringles strong, wholesome need a re-boost 

Overall, US snacks reported a net sales increase of $3,5bn, up 3.9% from fiscal 2012, but Bryant said the segment faced difficulties throughout the year and Kellogg would work to rebuild the category.

“… 2014 will be a rebuilding year as we continue to focus on what’s working and also on investment and innovation and better in-store execution. We recognize that we’ve got a lot to do in this business, and the team has been working hard on their plan,” he said.

In particular, the wholesome snacks segment has been a disappointment, he said. “We saw growth in the wholesome snack business where we’ve innovated, but frankly, we’ve been disappointed with the performance of this business. So we’re changing direction and are planning innovation and advertising that returns the core in both Special K and Nutri-Grain brands to its roots.”

Pringles was strong across most markets and will seal future growth for Kellogg, the CEO said

The CEO said Pringles had been strongest for fiscal 2013 across most markets – Asia Pacific, Europe, Canada and parts of the US. In the US, this was boosted by the launch of tortilla Pringles in late 2013, he explained.

“This has been a great acquisition for us. Sales and profit growth had exceeded our expectations in every quarter since the transaction closed. The integration has transformed our global snack business and significantly increased its growth potential.”

Kellogg sealed the lid on its $2.7bn Pringles buy in June 2012 , catapulting it into the no.2 position on the global snacks market, just behind PepsiCo.

Project K to pull Kellogg out of trouble

Last year Kellogg announced a four-year, cost-saving program, coined Project K

Kellogg plans to inject cash savings from Project K directly back into the business, the CEO said

, that should save the company an estimated $425-475m by 2018 – cash that Kellogg will pump back into the business, the CEO said.

This has been going well, so far, he said, and the program should work to drive strength in 2014. Kellogg has issued a guidance of internal net sales growth of around 1% for 2014, with profits expected to break even or rise by 2% at most.

“While Project J is just part of the solution, it is important as it will provide fuel for growth over the next four years. We will not only invest Project K’s savings back into the business, but we’ll also look to improve the effectiveness of our existing investment.

“Our goals for 2014 are to set realistic targets and to invest back into our categories and our brands. We’ve got a lot of work to do, but we also see a lot of opportunity,” Bryant said.

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