Kellogg Beats the Street in Q3, Unveils Project K Cost-Cutting Plan

Andrew Klips  |

Kellogg Company (K) opened the week by topping analysts with its third-quarter results as it divulged a new scheme to save money over the next four years that includes eliminating 7 percent of its workforce, or about 2,100 jobs (based on an estimated 31,000 employees at the end of 2012).

For the quarter ended September 28, Battle Creek, Michigan-based Kellogg reported net sales of $3.716 billion, virtually flat with $3.72 billion in the year prior quarter.  Net income was $326 million, or 90 cents per share, versus $318 million, or 89 cents per share, in Q3 2012. Excluding one-time items, such as cost associated with the acquisition of Pringles, adjusted profit was 95 cents per share, up 2.2 percent from last year.

Profits and sales beat Wall Street expectations of 89 cents per share and $3.7 billion, respectively. Analysts generally don’t include one-time items.

Aside from the earnings beat, the report disclosed a global, four-year cost-savings plan, called “Project K,” which Kellogg expects will result in total cumulative, pre-tax charges in the range of $1.2 billion and $1.4 billion.  Non-cash costs are expected between $272 million and $325 million. The plan involves cutting jobs and consolidating facilities to focus globally on regional brands and emerging markets, amongst other things.

Kellogg, which makes Pop-Tarts, Nutri-Grain bars, Eggo Waffles, Corn Flakes and more, has been under pressure from rivals like General Mills (GIS) and the growing popularity of different types of breakfast foods.

Sales of morning foods in America declined from $903 million in the third quarter last year to $883 million in the recent quarter. US snack sales also slipped, declining from $908 million to $886 million. On the whole, U.S. sales were down 1.3 percent.

In Europe, sales improved 6.4 percent to $729 million. Revenue from Latin America climbed from $292 million to $302 million. Sales in the Asia-Pacific segment, the company’s smallest revenue generator, declined 9.4 percent to $253 million.

"We are excited by the potential and opportunities we see for growth in the categories in which we operate. As a result, we are making the difficult decisions necessary to address structural cost-saving opportunities which will enable us to increase investment in our core markets and in opportunities for future growth,” said John Bryant, president and chief executive of Kellogg, in a statement today.

The impact of Project K and soft sales in certain categories caused Kellogg to change its view on full-year earnings, now expecting them to be at the lower end of its guidance of $3.75 to $3.84 per share. The earnings guidance is still roughly in line with analyst calls for $3.77 per share.  Net sales growth is expected between 4 percent and 5 percent for the year, versus its prior view of 5-percent expansion. 

Shares of K are trading higher by about 3 percent at $64.20 in early Monday action with the news. So far in 2013, shares are up about 14 percent through Friday’s close.

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