Dive Brief:
- The Kellogg Company posted a 8.3% earnings jump to $367 million, or $1.05 per share, in the company's most recent earnings report. This compares to $339 million for the third quarter of 2016, or 96 cents per share. Revenue was up 0.6% to $3.27 billion, versus $3.25 billion for the year-ago period.
- U.S. net sales in morning foods and snacks continued on a downward trend, and cereal category consumption remained soft, particularly in the health and wellness segment, the company reported. But thanks to the acquisition of Brazil's Parati Group, the company's sales increased 0.6% compared with last year.
- "Our third quarter played out as expected. Operating profit margin expansion got an added boost from the transition out of Direct-Store Delivery, and we posted another quarter of sequential improvement in our net sales performance,” Kellogg Chairman John Bryant said in a statement.
Dive Insight:
Kellogg's brand new CEO Steve Cahillane is tasked with reinvigorating an iconic company that has been struggling with sales for some time. Its core snack and cereal products have lost favor with consumers, and Kellogg has reformulated many of its brands and focused on marketing fresh, all-natural ingredients.
The brand has recently taken steps to get its sales back on track with its $600 million purchase of Chicago Bar Company, makers of the RXBAR clean-label protein bars. This has yet to impact the Michigan-based company's bottom line, but the popular brand can be expected to help boost U.S. sales when the deal closes by the end of this year.
Meanwhile, both U.S. cereal and snack sales declined this quarter by 3% and 4.5%, respectively, compared to a year ago. Pop-Tarts showed some strength, and there was growth in the frozen foods area with the company's Eggo and Morningstar Farms products.
Cereal companies continue to see an exodus of customers looking for new and different breakfast items and healthier, on-the-go products — particularly busy millennials — and the more snack-like a cereal product seems, the more it seems to appeal to younger consumers. Kellogg has had difficulty in this core segment and has tended to see lopsided earnings growth — with sales down and revenues up from job cuts and internal shakeups — in previous quarters.
While sales are still struggling in Kellogg's core, last year's $429 million acquisition of the Brazilian Parati Group and its biscuit, powdered drink and cracker brands put it over the top. This purchase came at an opportune time for Kellogg, which purchased the company in the midst of an economic downturn in the South American nation. Now, 15% of the company's sales are from developing markets, which also provide more opportunity to buoy slow growth at home.
Besides continuing to innovate, diversify and acquire, Kellogg has been cutting overhead by changing its distribution method away from direct store delivery and trimming jobs through its Project K initiative. While such approaches show benefits in the short term — operating profit was up 13% for the quarter and operating profit margin improved by 1.6 points — it remains to be seen if they'll continue to pan out over a longer period, especially if U.S. cereal and snack sales don't pick up.
On the plus side, Forbes reported Tuesday that this is the first revenue growth Kellogg has seen in 10 straight quarters, and the company's shares jumped more than 4% after the third-quarter results were released.