Kellogg's Snacks Help Results, but Cereal Remains a Challenge--Update

By Annie Gasparro and Micah Maidenberg 

Kellogg Co. is leaning on snacks like Pringles and Cheez-Its for growth, as its U.S. cereal sales continue to decline.

The maker of Frosted Flakes, Special K and Rice Krispies said Tuesday that its cereal sales in North America fell 4.8% in the third quarter on a comparable basis, while snacks sales in the region rose 5.2%.

Kellogg's shares rose 4.6%, as the company's adjusted profit of $1.05 a share, excluding currency effects, exceeded forecasts from analysts.

Long a breakfast staple, cereal has struggled in recent years as consumers have opted for more protein-heavy meals at the start of the day and fast-food chains have moved to expand their breakfast businesses.

"What we haven't done as an industry is respond quickly enough to some of the trends," Chief Executive Steve Cahillane said on a conference call.

More marketing investments and production capacity for cereals over the next couple months will help, he said. Kellogg is also replacing some underselling and low-margin brands with new ones, like Pop-Tarts cereal.

Kellogg's salty snacks, including Pringles, indulgent ones like Rice Krispies Treats, and "wholesome" brands, like Nutri-Grain, are driving growth. Also contributing are new products such as Pringles Wavy, Nutri-Grain bites and smaller or single-serving packages meant for people to eat on the go.

New Cheez-It Snap'd crisps, for instance, have been such a success that Kellogg is at peak capacity, selling every box it makes, executives said.

Kellogg's frozen-food brands, including Eggo and MorningStar Farms, are also gaining traction. Americans' increasing interest in meat alternatives coupled with new product launches from MorningStar Farms helped the company gain market share and shelf space in the latest quarter.

Battle Creek, Mich.-based Kellogg reported third-quarter sales of $3.37 billion for the quarter, slightly more than expectations from analysts polled by FactSet but down from $3.47 billion a year earlier.

The company said its sale of Keebler cookies and other brands, a deal that was completed in July, weighed on results compared with last year's third quarter. But that move has allowed Kellogg to focus more attention and resources on its core U.S. brands, executives said.

"The heaviest lifting and the biggest, most disruptive actions are largely behind us," Mr. Cahillane said.

The company reported a profit of $247 million, or 72 cents a share, compared with $380 million, or $1.09 a share, last year.

Excluding currency fluctuations, mergers and asset sales, global sales rose 2.4% in the quarter, Kellogg said.

Kellogg's costs of goods sold grew about 3% in the quarter as it paid more for ingredients, but it raised its prices to help offset that. Selling, general and administrative expenses fell 6%, aiding its profit margin.

Write to Annie Gasparro at [e-mail] and Micah Maidenberg at [e-mail]

(END) Dow Jones Newswires

October 29, 2019 12:40 ET (16:40 GMT)

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