- Kellogg reported a nearly 50% rise in profit for Q1 2017 as a result of continued cost-cutting measures, according to a company release.The cereal giant posted Q1 net income of $262 million, or 74 cents per share, compared to $175 million, or 49 cents per share, in the year-ago period.
- Company revenue came in below analyst predictions, dipping to $3.26 billion compared to $3.4 billion last year. Kellogg attributed this decline to a slow-moving U.S. morning foods segment.
- "We continue to make progress on our 2020 Growth Plan, which directly addresses many of the revenue headwinds we are presently facing, and we have good visibility into continued currency-neutral operating-profit margin expansion," Kellogg Chairman and CEO John Bryant said.
Kellogg's healthy Q1 profits are good news for the legacy cereal brand, which has struggled to raise sales as shoppers move away from traditional, processed cereal options in favor of yogurt, smoothie and on-the-go breakfast items.
This success likely stems from the company's four-year "Project K" initiative, a restructuring program Kellogg launched to ramp up production and profit through job cuts and other means. In January, the morning foods brand announced that it would eliminate 250 jobs from its North American business as part of the program. The company expects Project K to generate between $425 million and $475 million of annual cost-savings by 2018.
Kellogg has also turned to new supply chain innovations to trim costs. In its previous earnings report, it announced that it had adopted a new distribution method for its snack segment, shifting all of its snacks to a warehouse system — and cutting about 2,000 jobs in the process. Before this, 60% of the company's snacks were distributed through direct store delivery.
While cutting jobs is never a popular solution to financial struggles, it's clear that the company needed to make a serious change in order to compensate for sluggish cereal and snack sales. Aside from internal restructuring, the company has also turned to product innovation in an effort to spark growth. In January of this year, Kellogg launched more than 50 new products, including several revamped varieties of classic cereal brands like Special K and Frosted Flakes.
Kellogg's leadership continues to be optimistic about the future of cereal, but it will be interesting to see how these new varieties perform with consumers. It's more likely that products that are a departure from the traditional cereal-with-milk breakfast bowl will see the most success, as busy consumers seek cereal-based bars, snacks and desserts they can eat on the go.