Despite a decline in US sales of cereals, The Kellogg Company has reported higher Q3 sales coming in at US$3.27 billion which is an increase of 0.6 percent on the same period last year.
Sales for Q3 have also beaten analysts’ expectations. The growth is the first such increase since the quarter ending December 31, 2014, and, according to the company, this reaffirms its financial outlook for the full year 2017.
“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,” said John Bryant, Kellogg Company’s chairman.
“There was some timing benefit that comes out of the fourth quarter, but these results put us solidly on track to deliver on our full year 2017 financial guidance, just as we welcome Steve Cahillane as the eleventh chief executive officer in our company’s history.”
“I am honored and excited to be part of this great company,” said Cahillane. “In a few weeks, I have already confirmed everything that attracted me to the company; Iconic brands, outstanding food, a special culture, and a will to win. The third quarter results and 2017 financial outlook are a testament to the strategy in place, as is the acquisition of RXBAR, which will serve as an additional platform for growth.”
Q3 consolidated results
Kellogg’s third quarter 2017 earnings per share increased by almost 4 percent from the prior-year quarter, as higher operating profit more than offset a higher effective tax rate.
Non-GAAP, comparable earnings and currency-neutral comparable earnings per share were both up 9 percent from the year-earlier quarter.
Quarterly reported operating profit increased by 13 percent and operating profit margin improved by 1.6 points. This was driven by strong productivity savings related to the Project K restructuring program, particularly this year’s exit from its US snacks segment’s Direct Store Delivery (DSD) system and its related elimination of overhead during the quarter.
Currency-neutral comparable operating profit increased by 17 percent year on year and its currency-neutral comparable operating profit margin improved by 2.8 points.
Third-quarter 2017 reported net sales increased year on year, due to the December 2016 acquisition of Parati in Brazil, as well as favorable currency translation.
On a currency-neutral comparable basis, net sales declined modestly, principally reflecting previously announced list price adjustments and other impacts in US snacks related to its transition from DSD.
Third quarter business performance
The company says its third-quarter net sales and operating profit performance continued to improve sequentially. Year on year, sales were reduced by the list-price adjustment and other impacts from transitioning out of DSD in US snacks and remained pressured by softness in the health and wellness segment of the cereal category in the US.
However, key elements of an improving second-half net sales performance took shape, including the return to promotional activity and growth for Pringles in Europe; a return to growth in North America Other, led by accelerated consumption growth in Frozen Foods; and sequential improvement in Special K’s global performance.
Additionally, productivity savings accelerated with the closing of the DSD system in US Snacks.
US morning foods segment
The US morning foods segment posted lower net sales on both a reported and currency neutral comparable basis, as cereal category consumption remained soft, particularly in the health and wellness segment. Key taste-oriented cereal brands and Pop-Tarts toaster pastries continued to gain share in the quarter.
The segment’s reported operating profit declined due to higher restructuring charges, with a flat operating profit margin, while currency-neutral comparable operating profit and operating profit margin increased, reflecting the strength of productivity initiatives.
The US Specialty Channels segment posted another quarter of growth in reported and currency-neutral comparable net sales. The segment also delivered another quarter of strong reported and currency-neutral comparable operating profit and operating profit margin.
The North America segment, which is comprised of the US Frozen Foods, Kashi, and Canadian businesses, posted solid increases in reported and currency-neutral comparable net sales. Frozen Foods’ sales growth accelerated in the quarter, with strong consumption and share performance for both Eggo and Morningstar Farms, each driven by innovation and favorable category dynamics.
Canada’s sales were flat, with an increased share in both cereal and snacks. Kashi Company sales declined at a moderated rate, as renovated and new products are leading to an increased share in cereal and stabilizing share in snack bars. On a reported and currency-neutral comparable basis, North America Other’s operating profit and operating profit margin increased strongly in the quarter.
Source: Food Ingredients First
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