Kellogg Q4 gains overshadowed by impending layoffs
- Kellogg's operating profits expanded in Q4 of 2016, with profit margin increases in all regions, according to the company’s earnings report.
- Kellogg's earnings decreased 25% per share in Q4 of 2016 compared to the previous year, with net losses of $53 million or 15 cents per share, Many of these declines come from deconsolidation of business in Venezuela and adverse currency exchanges. Net sales decreased for the eighth straight quarter — down 1.4% to $3.097 billion.
- The company used its earnings report to announce a new distribution method for its snacks segment, shifting all of it to the warehouse system. The company previously had 60% of its snacks distributed through direct store delivery. The change could result in the loss of more than 1,100 jobs through the closure of 39 regional delivery centers, according to USA Today.
While Kellogg's results were fairly mixed, any gains are overshadowed by the distribution changes.
"This was a difficult decision, but one that accelerates a transformation of our U.S. Snacks business, leading to better growth and profitability ahead, both for our retailer partners and for us," Paul Norman, President of Kellogg North America, said in the earnings report.
While the manufacturer touted the warehouse model in a Wednesday night company statement as "highly efficient," the impact on employees — and potentially the company's reputation — is far reaching.
Norman said that as shopper habits and the retail landscape have evolved, “it has become clear to us that we must redeploy resources, currently invested in our DSD distribution system, to other forms of marketing that can more effectively and efficiently reach today’s consumer.”
Last month, the company announced it was cutting 250 jobs as part of what it calls Project K, an effort to generate $425 million to $475 million in annual cost-savings by next year. With this change, the earnings report estimates a savings of $600 million to $700 million through the end of 2019.
Kellogg's declines aren't too much of a surprise to those following the company closely. Kellogg has been struggling to drive sales over the past two years — primarily due to weak performance in cereal combined with a soft U.S. snacks resulting from lower demand. Company efforts are underway to help solve these issues.
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