Kellogg boosts EPS forecast while sales continue to decline
- Kellogg reported second-quarter earnings Thursday, including a 6.6% decline in net sales to $3.27 billion, down from $3.50 billion last year. Currency-neutral comparable net sales rose 8.6%.
- The company's reported net income soared 26% to $280 million, while reported operating profit increased 9.1% to $449 million for the quarter.
- Kellogg raised its full-year EPS guidance on a currency-neutral comparable basis to $4.11 to $4.18 per share, compared to the previously anticipated $4 to $4.07 per share.
Kellogg attributed quarterly profit boosts to its Project K and zero-based budgeting initiatives, which have produced strong cost savings for the company. In November 2013, Kellogg announced Project K, a four-year initiative that would reduce the company's global workforce by 7%, and since, Kellogg has shuttered or announced the closing of a number of plants.
The most recent announcement came this week, when Kellogg said it would shut down its snacks plant in Seelyville, IN, by the end of 2017. The plant produces crackers for brands like Keebler, Club and Cheez-It. But as Kellogg works to "better align our manufacturing assets with marketplace trends and customer requirements," the company decided that production capacity of its cracker manufacturing network exceeded demand, Kris Charles, a spokesperson for Kellogg, said in a statement.
In its earnings news release, Kellogg said it "continued to make progress on its priorities, including stabilizing cereal in the U.S. and Australia, good emerging-markets growth, improved profit margins, and Pringles growth worldwide." However, all U.S. business segments but U.S. Specialty Channels reported net sales declines: 2% for U.S. Morning Foods, 3.8% for U.S. Snacks and 7.5% for North America Other, which includes U.S. frozen foods, Kashi and Canadian businesses.
Though sales for U.S. Morning Foods dipped, as they have in several recent quarters, Kellogg said its six core cereal brands maintained their all-channel share, and the company improved the segment's profit margins. According to Nielsen data, Kellogg's RTE cereal sales dropped 2.1% for the 12 weeks ended July 2, including sales declines in all product categories for the Special K brand, led by a 21% decrease for Special K Protein.
If Kellogg doesn't turn around its cereal sales, the company could face pressure from investors to sell itself, as other companies have. That may be part of the reason why Kellogg has focused on cost-cutting initiatives like Project K and zero-based budgeting to offset those revenue losses. Kellogg's stock soared to record highs last month on takeover speculation by Coca-Cola and Kraft Heinz, but analysts have since squashed those rumors.