Dive Brief:
- Kellogg reported fourth-quarter net income of $428 million, or $1.23 per share, compared to a loss of $53 million, or 15 cents per share, in the year-ago period, according to a company release. The cereal giant reported revenue of $3.21 billion, up from $3.10 billion in the same period last year — exceeding analyst expectations.
- Once again, the U.S. snacks and morning foods segments saw sales declines, driven by poor cereal performance and weakening demand for its snack products.
- Kellogg CEO Steven Cahillane said in the earnings report that it will take time for the company's recent investments to start giving strong results, but that the company is entering 2018 on solid footing.
Dive Insight:
Kellogg's earnings are a positive finish for the year, and newly-minted Cahillane attributes some of this growth to the company's transition out of direct store delivery for its U.S. snacks division. The move allowed the cereal maker to shift resources from the system back into its brands, including RXBAR, which was officially acquired in 2017 for $600 million.
RXBAR has given the company access to the growing and lucrative health and wellness space, which could prove to be a bright spot. The U.S. market for nutritional shakes and bars exceeded $9 billion in 2016, and sales for the category are expected to rise 8.3% annually through 2021. This growth has been driven by consumer demand for convenient, clean and nutritious snack solutions, which — unfortunately for cereal makers like Kellogg — is taking some of the wind out of cereal's sales. Many time-strapped shoppers find assembling and eating a bowl of traditional cold cereal too time consuming for the average morning, and would prefer to grab a bar on their way out the door.
The manufacturer invested in reviving its soggy cereal segment at the start of last year, but these efforts have yet to pay off. The company's U.S. morning foods segment's net sales fell on a reported and currency-neutral comparable basis, and the category's operating profit also declined. Meanwhile, the company's "North America Other" segment, which includes Kashi and RXBAR, saw increased net sales for the quarter.
But the period's success can also be traced back to layoffs through "Project K," its use of zero-based budgeting and new administrative efficiencies — points of growth that won't be sustainable for the long term.
In its outlook for the rest of 2018, Kellogg predicts flat net sales and adjusted earnings per share growth of around 9-11%.
It's unclear how the company will regain top-line growth, as there is little left to cut in order to boost results. It's possible that RXBAR and other recent investments, such as its stake in Cargo, a New York-based startup that provides ride-share drivers with snacks for passengers, will give Kellogg a boost. Additional growth could stem from further investments in product development and startups that are developing in the incubator it invested in last year.