- Kellogg’s net sales have increased about 7% to $3.46 billion since this time last year, boosted by RXBAR, according to the company's Q3 earnings report. The company's net income also rose to $383 million from $288 million this time last year, and reported an operating profit increase of 18.8% to $396 million because of the Project K restructuring program and the consolidation of Kellogg’s supply chain.
- Higher expenses for more on-the-go packages and an increase in shipping costs led to a 2.6% decrease in adjusted operating profit for the quarter. Kellogg now anticipates adjusted operating profit to be flat this year, compared to a previous projection of 5% to 7% growth, The Wall Street Journal reported.
- Chairman and CEO Steve Cahillane said in a statement the company boosted its investments behind its brands and new pack formats. "Despite their near-term impact on profit, we'll continue making these investments in the fourth quarter because we know they are putting us on a path for sustainable growth over time," he said.
Bolstered by its $600 million purchase of RXBAR last year, the Michigan company has appeared to be sailing in the right direction for shareholders. But it's hit obstacles on the way, as sales were hurt by the company's investment in single-serve products. Cahillane said Kellogg is now planning to make the new single-serve snacks in their own factories to lower the cost and continue sales growth.
Despite Kellogg’s overall financial growth, there has been a lot that is shrinking behind the scenes. This quarter, the company highlighted the success of its Project K restructuring program as well as consolidation of its supply chain, both of which have reduced overhead costs as well as personnel. While there was no mention in the earnings report of any financial ramifications from the lawsuit filed by the company’s sub-distributors last year about the logistics shift, the company noted the decision last year to end direct-store delivery lowered the price of some snacks. But as a whole, the Kellogg’s snack segment experienced lower net sales than this time last year.
Still, lower sales in one of Kellogg’s strongest segments didn't cause the company to waffle in its strategy, in part due to the significant savings garnered through restructuring. When Project K was announced in 2013, the planned four-year initiative was expected to generate between $425 million and $475 million of annual cost savings by this year, and it looks like the CPG giant is on track. Although there was no mention of further cuts or closures, the report said "the company's Project K restructuring program continued to deliver on its targeted savings." So far this year, that amounts to a 38% growth in operating profit.
While change is occurring on the operations side of the business, on the food side Kellogg’s still hasn't given up on some of its staples. Sales declined overall in its U.S. breakfast foods segment, but some brands, including Pop-Tarts, improved. The company's decision to cater to nostalgia through sweets has also seemed to be steering sales in the right direction. Recently, Kellogg launched a trial run of cupcake flavored Unicorn Cereal with pink, purple and blue rings sprinkled with white "crunchlets," as well as Wild Berry Froot Loops. Similarly, its frozen division — which makes Eggo waffles — contributed "strongly" to an increase in net sales.
Overall, the company seems to be heading in the right direction to stabilize business by both investing in core cereals and expanding its product reach through bolt-on deals, like RXBAR, that allow it to better respond to consumer trends. But the company should probably tread lightly when it comes to cost-saving strategies. If they continue to respond to drops in sales by consolidating supply chains and personnel, it may encounter consequences that not only affect its bottom line, but its reputation as well.