Food major Kellogg’s sales slump as consumers shun cereals and snacks

Sagging demand for cereals and snacks in the United States has impacted food major Kellogg's earnings. The company is known for its Corn Flakes and Cheez-It crackers. It reported a drop in quarterly net sales.

While total net sales fell 8.5 percent to US$3.33 billion (AU$4.62 billion), net income fell 8.5 percent to US$205 million (AU$286.8 million), in the quarter. The sales of Kellogg’s cereals in the US stood flat in the second straight quarter.

Chief Executive John Bryant claimed adult-focused brands are now performing better as it reworked the content and added more dried berries. It also launched Raisin Bran with cranberries in that segment, Reuters reported.

The falling sales were more apparent in US snacks business. It fell 1.5 percent, and in morning foods, including cereals, the crash was 2.6 percent. The sales in both the segments fell for the third straight quarter as net sales registered a decline, its decline for the eighth time in nine quarters.

CEO hopeful

Chief Executive John Bryant attributed the dip in sales to the diminished retailer inventory.

"We're succeeding with bringing consumers back into the category, particularly adults," Bryant said in an interview.

On the revenue outlook, the CEO said if the 2016 revenue was on the lower end, it could still meet its operating profit growth target of 4 percent to 6 percent through cost-cutting. He also said the company was expecting earnings per share growth of 6 percent to 8 percent in 2016 excluding the effects of currency and acquisitions.

JP Morgan analyst Ken Goldman called the results “slightly negative,” and noted the 2016 earnings per share guidance as lower than expected with revenue growth for the year to be closer to the lower end of the company's forecasted growth.

Strategy

To rejuvenate sales, Kellogg's has been repackaging its products to make them more lucrative to consumers. It also promised to stop the use of artificial colors and flavors in products by 2018 and will use only cage-free eggs in the United States.

Another strategy will be acquisitions in emerging markets. It already bought two Egyptian companies - Bisco Misr and cereal maker Mass Food in 2015 and clinched a big distribution deal in Africa.

In line with the drift of US consumers from sugary, carbohydrate-heavy breakfasts and snacks, Kellog's is reformulating its recipes and repositioning the advertising to hold the decline in cereal sales.

Kellogg's is also making efforts to be less dependent on sales growth and cutting corporate spending and closing less-efficient factories. Kellogg's became the latest food producer to adopt zero-based budgeting that seeks justification for all expenses every year, reported the Wall Street Journal.

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